Source: Golden Ten Data
Well-known Wall Street analysts said that the S&P 500 index is expected to jump to 5,500 points in June, driven by five major positive catalysts.
According to a report released by Tom Lee (Tom Lee), head of research at Fundstrat, on Tuesday, US stocks are expected to rise another 4% in June after rising 5% in May.
Lee said the S&P 500 index (SPX) could jump to 5,500 points within the next month, driven by five positive market catalysts. He said, “We think the stock market will receive positive support in June, so (if there is a pullback), just buy on dips.”
Lee is one of the few well-known Wall Street analysts who expect the market to rebound in 2023. The target price he set for the S&P 500 index (SPX) last year was only more than 30 points away from the index's final price. According to reports, among the strategists tracked by Bloomberg, his predictions were the closest, and he was nicknamed the “Wall Street God Operator.”
The first catalyst Lee cites is a bullish seasonal factor. Since 1927, the stock market has risen 17 times in the first quarter and then declined in April. This was also the case this year, which often indicates a strong rise in the stock market in May and June.
Lee said that the probability that US stocks will rise in June is 100%, with an average increase of 3.9%, which means that the S&P 500 index will reach another record high.
Lee said, “Judging from seasonal factors alone, the outlook for US stocks is optimistic. So we think the market still has upside potential.”
Lee believes that the second catalyst for the rise in US stocks is the easing of inflation, or more accurately, the continued anti-inflationary trend. He expects several favorable stock market inflation figures to appear in the next few weeks. The first is the April core PCE data released on Friday, followed by the May CPI data released on June 12.
The continued decline in used car prices in the US, the surge in new car inventories, and a downward trend in owners' equivalent rents all convinced Lee that inflation would continue to fall. If this is true, the possibility that the Federal Reserve will cut interest rates in the second half of the year will increase.
Lee said, “I think the market's expectations for the number of times the Federal Reserve will cut interest rates before the end of the year will actually start to rise again.”
The market currently expects the Fed to cut interest rates only once in 2024. If more interest rate cuts begin to be digested by the market, this should be a good wind for the stock market.
The third catalyst that drove the stock market's rise in June was the low leverage ratio of investors, which meant that the excitement often accompanied when the market peaked did not exist. Lee stressed that the NYSE's $775.5 billion margin debt is still 17% below the peak of $936 billion in 2021.
The fourth catalyst was a record $6 trillion in “wait-and-see cash.” Lee said that Nvidia's impressive results last week may prompt investors to end up using this cash to buy stocks.
Finally, the fifth catalyst is steady corporate earnings results, which indicate that profits are continuing to rise.
Lee said, “This earnings season shows that the fundamentals of the economy are in perfect condition, and I think the AI narrative is becoming more powerful.”
According to Bank of America data, 97% of the S&P 500 companies have announced first-quarter results, with earnings per share being 3% higher than generally expected. Although the Big Seven stocks led the way, the other 493 stocks in the S&P 500 index constituent stocks also showed steady performance.
Bank of America said in a report on Tuesday: “Furthermore, profit expectations for the rest of 2024 have risen slightly from the previous quarter.”
editor/tolk