By Isabel Wang
A record stock-market rally has caught many of Wall Street's top strategists flat-footed. Now, they're racing to catch up, updating their year-end S&P 500 targets.
Heading into 2024, Wall Street investment banks and research firms largely expected U.S. stocks to post positive yet underwhelming gains after a robust and forecast-defying 2023. Last year's rally left investors to worry whether stocks could build on their gains as interest-rate and inflation threats lingered.
But that cautious outlook was shattered. A renewed wave of AI enthusiasm and reassurance by the Federal Reserve that recent sticky inflation had not changed its plan for three interest rate cuts this year, have sent stocks on a seemingly relentless record-setting run.
The large-cap benchmark S&P 500 index SPX on Thursday notched its 20th all-time closing high in 2024, while the Nasdaq Composite COMP ended at its fourth all-time high and the Dow Jones Industrial Average DJIA scored its 16th record close so far this year, according to Dow Jones Market Data.
The stock rally has surprised Wall Street forecasters and forced some to bump up their predictions of where U.S. equities will go next.
At least six Wall Street banks have lifted their S&P 500 targets over the past two months.
On Monday, Oppenheimer Asset Management lifted its year-end target to 5,500 from 5,200, indicating additional upside of over 5% from Friday's closing level of 5,234.18, said a team of strategists led by John Stoltzfus, chief investment strategist and managing director. They said positive signs in earnings over the last two quarters, resilience in the economic growth and a "substantial capitulation" among the bears and bearish community all support their upgrade to S&P 500's outlook.
Oppenheimer's 5,500 price target appears to be one of the most bullish forecasts among Wall Street's biggest banks and research firms tracked by MarketWatch. Strategists at Société Générale on Thursday also lifted their year-end target to 5,500 from 4,750.
See: 'Keep buying the S&P 500,' says Wall Street's most bullish bank - hikes year-end target to 5,500
Earlier this month, Bank of America's Savita Subramanian and strategists at Barclays joined the bullish club in adopting 5,400 and 5,300 as their year-end targets for the S&P 500, respectively, pointing to resiliency in the economy and earnings strength from megacap technology stocks.
Goldman Sachs in February raised its forecast to 5,200, its second upward revision since late last year. The bank now falls in step with one of Wall Street's most bullish forecasters - Fundstrat's Tom Lee, who also sees a 5,200 finish after accurately foresaw 2023's bull market.
The estimates from strategists put the median target for the S&P 500 at 5,200 by the end of 2024, implying a decline of less than 1% from Friday's level, according to MarketWatch calculations. Heading into 2024, the median target was around 5,000 (see table below).
Not every bank has so far updated its price target for the S&P 500.
Wall Street firm 2024 S&P 500 target as of March 25 2024 S&P 500 target as of Dec. 11 Oppenheimer Asset Management 5500 5200 Société Générale 5500 4750 Bank of America 5400 5000 Yardeni Research 5400 5400 Barclays 5300 4800 Goldman Sachs 5200 4700 UBS Global Wealth Management 5200 (5500 in upside scenario) 4700 Fundstrat 5200 5200 RBC 5150 5000 Citi 5100 5100 Deutsche Bank 5100 5100 BMO Capital Markets 5100 5100 Wells Fargo Investment Institute 4900 4625 Morgan Stanley 4500 4500 JPMorgan 4200 4200 Average 5117 4891 Median 5200 5000 Source: MarketWatch
See: What 2024 S&P 500 forecasts really say about the stock market
It is worth noting that some of the doomsayers still sound pessimistic about the stock market in 2024. Morgan Stanley 's Michael Wilson remains one of the most bearish Wall Street strategists, telling Bloomberg last week that he is still standing by his year-end S&P 500 target of 4,500, which is around 14% below the index's Thursday level and 13.5% short of the median call of strategists tracked by MarketWatch.
JPMorgan Chase has the most bearish projection yet among Wall Street firms, seeing the S&P 500 finish the year at 4,200.
To be sure, investors should take forecasts with a grain of salt. MarketWatch reported that Wall Street strategists broadly failed to predict the stock-market rally in 2023, with their median target being around 10% lower than where the S&P 500 settled at the end of 2023.
So much for top-down estimates. How does Wall Street do based on a bottom-up approach?
John Butters, senior earnings analyst at FactSet Research, looked at bottom-up target prices for the S&P 500 calculated by aggregating the median target price estimates, based on company-level estimates submitted by industry analysts, for all the companies in the index.
Historically, Wall Street analysts have overestimated the S&P 500 by about 3% to 8% on average over the past 20 years, according to Butters, but have tended to underestimate the closing price of the S&P 500 over the past few months.
Looking back at this time last year, the bottom-up target price was 4,635.48. Based on Wednesday's finish of 5,224.62, industry analysts in aggregate underestimated the closing price at the end of March 2024 by over 11% nearly a year ago, Butters said in a Thursday note.
Now, Wall Street analysts predict the S&P 500 to advance 7% over the next twelve months, to around 5,589 by March 2025, Butters said, based on the bottom-up approach.
U.S. stocks logged strong weekly gains on Friday, with the S&P 500 and Dow industrials each posting their best week of 2024, while the Nasdaq Composite saw its strongest week since January.
-Isabel Wang
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03-25-24 1055ET
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