Source: Golden Ten Data

Some Wall Street investment banks believe that after experiencing a pullback last month, US stocks will soon usher in a midsummer carnival.

UBS said that last month's tension in the stock market has subsided, and the current rebound is the beginning of a large-scale rise in the summer.

According to a report released by the bank on Tuesday,$S&P 500 Index (.SPX.US)$It is likely to reach its target price of 5,500 points by the end of this year. This means that the index will rise more than 5% from current levels.

In April, that forecast didn't sound very realistic. At that time, the S&P 500 index fell 4.5% from high to low, as intense inflation data raised concerns about the possibility of interest rate hikes.

Solita Marcelli (Solita Marcelli), chief investment officer for the Americas at UBS Global Wealth Management, wrote: “But macroeconomic data for the first few weeks of May have allayed these concerns: wage growth continues to show signs of weakness, which is positive for fighting inflation, and the overall economy appears to be on a firm footing.”

The expectation of further easing in inflation is one of the four factors Marcelli believes the environment will continue to support the stock market this year.

On Tuesday, the higher-than-expected producer price index (PPI) for April already challenged this outlook. At the same time, however, the March data was revised down, which allayed some of the market's concerns.

Second, slowing price growth will make the prospects for interest rate hikes increasingly unrealistic, which is a boost for the stock market. Although there are still people on Wall Street who think the Federal Reserve will not cut interest rates this year, the futures market betting policy shift will begin in September.

Third, Marceli expects the company's growing profit to support the continued rise in the stock market. He added, “The profit situation in the first quarter was good. So far, more than 75% of the company's performance has exceeded expectations. This supports our view that the S&P 500 index's profit will increase by 9% this year.”

Finally, Marcelli pointed out in the report that even if the rise in US stocks expands, continued investment in artificial intelligence will continue to drive the upward momentum.

Although utilities have been one of the top three sectors in the past 30 days, even so, this has been fueled by artificial intelligence hype. After all, 30% of the industry's share is related to electricity demand, which has been greatly boosted by technological developments.

“We expect AI spending to remain strong, and we anticipate that terminal markets such as PCs and smartphones will bottom out,” Marceli wrote, noting that investors moving to cheaper segments will not offset this impact: “In the first quarter earnings season, the tech sector's earnings were the strongest so far, and the industry's correction was faster than in other markets.”

She added that the strength of the tech industry is not limited to the Big Seven. Except$Microsoft (MSFT.US)$,$NVIDIA (NVDA.US)$und$Apple (AAPL.US)$In addition to companies, technology companies' profit forecasts have been raised 7% since March.

Bank of America also said that the stock market has sent bullish signals in recent days, which indicates that the S&P 500 index will reach a record high this summer.

Stephen Suttmeier (Stephen Suttmeier), the bank's technical strategist, said: In a report on Tuesday, it was emphasized that the rising and falling lines of the S&P 500 index and the New York Stock Exchange Composite Index (NYA) both reached record highs last Friday. This indicates a steady market breadth and supports a market rebound in the summer of 2024.”

The rise and fall line is an indicator that measures the breadth of the stock market. It is calculated by measuring the difference between the number of rising and falling stocks each day. Technical analysts see it as a leading indicator, which means it usually hits new highs or lows before the general market.

Ryan Detrick (Ryan Detrick), a market strategist at Carson Group, also shared the same view. In a recent report, he pointed out that the sharp rise and fall line is another reason to be optimistic about the stock market.

Detrick said, “Simply put, this is not a phenomenon that occurs in a bear market; this means that the early spring rebound is likely to continue.”

He stressed that the midcap index's rise and fall line has also hit a new high, while the small cap index's rise and fall line is about to hit a 52-week high.

Sattmeier said that the bullish rise and fall line, combined with the bullish continuation pattern formed by the S&P 500 index this month, means that the index may hit a record high this summer. “In the summer upward trend, the index is likely to break through 5265, with a target price of 5560,” he added. This forecast indicates that judging from current levels, the S&P 500 index is likely to rise 6% from current levels.

Editor/jayden