In the nearly five months to 2024, major US stock indexes continued to hit new highs. Wall Street doesn't think this rebound is over, as prospects for earnings and economic growth have been rising steadily throughout the year.

In the past two weeks, three stock strategists tracked by foreign media raised their year-end targets for the S&P 500 index. According to foreign media data, Wall Street's average target price for the S&P 500 Index (SPX) is about 5,250 points, up from 4,850 points on December 30 last year. The highest target price also rose from 5,200 points at the beginning of this year to 5,600 points.

Ohsung Kwon, an American and Canadian stock strategist at Bank of America, said that the current environment is basically what the bulls want. “This is basically a soft landing.”

Kwon explained that although the inflation data at the beginning of this year was higher than expected, it still doesn't indicate that inflation is accelerating again. Meanwhile, other data showed that the US economy was slowing but strong, easing concerns that overheated economic growth could trigger another spike in inflation. Kwon said that essentially, this has fueled Wall Street's optimistic narrative that the US economy will land softly.

Brian Belski, chief investment strategist at BMO Capital Markets, pointed out that with the release of these data, the market has undergone important changes. The market currently expects to cut interest rates about twice this year, lower than the peak of nearly seven times at the beginning of the year. This is in line with the Federal Reserve's recent predictions.

Belski wrote in a May 15 research report, “We have clearly realized that we have underestimated the strength of market momentum, especially considering that investors' expectations and the Federal Reserve's policy guidance are already largely consistent, and there was a serious disconnect between the two at the beginning of this year.”

In this report, Belski raised his year-end target for the S&P 500 index from 5,100 points to 5,600 points, the highest on Wall Street. He pointed out that given the strong level of the stock market at the beginning of this year, history indicates that US stocks may rise further in the future.

According to Belski's analysis of historical data, in the years where the S&P 500 index rose more than 8% in the first five months of a year, in 70% of cases, the index rose more than 7% at the end of the year.

However, Belski and other strategists who raised the outlook for the stock market this year also warned that without more correction, the stock market may not rise higher. Belski pointed out that compared to the fall of more than 9% in the second year of the bull market, the 5% decline in April was insignificant, but considering the stock market rebound at the beginning of the year, “if there is a more severe correction, the final increase in US stocks may exceed our previous expectations,” Belski said. This provided a higher landing point for the S&P 500 index after rebounding.

Entering the new year, Wall Street bullish strategists insist that the key to this year's stock market rebound will be a continued rebound in corporate profits. This has happened so far. US stock corporate profits increased 6% in the first quarter of 2024, the highest growth rate in the past two years.

So far, the factors driving the company's profits have not changed significantly. Like Nvidia's (NVDA) blowout quarterly results that began last Wednesday, technology companies' profits accounted for the largest share of earnings growth among S&P 500 constituent companies. Strategists believe that corporate profits are likely to grow further by the end of 2024.

Kwon pointed out that the first phase of the AI cycle has begun, earnings from companies such as Nvidia are growing, and tech giants such as Alphabet (GOOGL), Amazon (AMZN), and Microsoft (MSFT) are also investing in this evolving technology. Furthermore, with the recent rebound in sectors such as utilities and energy, corporate profits have begun to expand.

“We don't think it's just Nvidia's problem anymore,” Kwon said. “Profitable industries are expanding to include electricity, commodities, utilities, etc.”

Kwon pointed out in a recent research report that Nvidia has boosted profit growth of 37% in the S&P 500 index over the past month. Over the next 12 months, this ratio is expected to be only 9%.

Binky Chadha, chief stock strategist at Deutsche Bank, also believes that other sectors of the S&P 500 index will contribute to strong profit growth by the end of this year. He recently raised the S&P 500 target from 5,100 points to 5,500 points, but said there is a clear “upward risk” in the target.

First, Chadha pointed out that although people are “talking about being bullish,” stock positions haven't changed much in the past three months. Deutsche Bank's position metrics show that investors “increased” their holdings in stocks, but did not reach the “extreme” levels of 2021 and 2018.

According to Chadha, this indicates that the stock market may have more room to rise, especially considering that the current market consensus does not reflect that the US economy will perform well.

Chadha emphasized that the market's expectations for the US economy have actually just changed from an impending recession to growth at or below normal trends. If this consensus continues to rise, and the growth of the US economy once again exceeds expectations this year, and some people think this may be a boom in US labor productivity, then it is not difficult to see the S&P 500 reach 6,000 points. He said:

“We've come a long way, but it seems like we haven't quite made it yet.”

Editor/Somer