S&P 500 Hits Second-Straight Record High As Experts Warn Of ‘Excessively Bullish’ Stocks—How Much Higher Could They Go This Year?

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Topline

Major stock market indexes extended a streak of record highs Wednesdays as investors continued to gush over Federal Reserve stimulus measures, blowout corporate earnings and the promise of a strong economic recovery—factors that have prompted many experts in recent days to lift their stock-market expectations, with some forecasting the S&P 500 could climb nearly 10% by year’s end.

Key Facts

Boosted by outsized gains in leisure, travel and energy stocks, the S&P 500 ticked up 0.2% to close at a second-straight record high of 4,496 points, marking the index’s 51st closing high this year.

“Incredibly, 2021 is currently on pace for 78 new highs,” LPL Financial Chief Market Strategist Ryan Detrick wrote in a Wednesday note, pointing out the all-time record for any year is 77 highs in 1995 and adding: “We continue to expect higher prices before all is said and done.”

Last week, LPL Financial boosted its end-of-year S&P target from 4,425 to 4,675, suggesting the index could climb another 4% this year, as a result of profits that were “off the charts” last quarter thanks largely to investments in productivity-enhancing technology and cost savings on business travel, entertainment and office space.

On Tuesday, analysts at Wells Fargo issued Wall Street’s highest S&P price target for this year, forecasting the index could climb another 8% to 4,825 as a result of S&P companies raising their earnings expectations by 21% this year. 

Citing the Federal Reserve’s low interest rates and the better-than-expected corporate earnings, Goldman Sachs is similarly bullish about the stock market, telling clients last week the S&P could jump another 7%, to 4,700 points.

Meanwhile, UBS on Tuesday issued a more modest target of 4,600 for this year, but 5,000 for 2022.

Tangent

The Nasdaq also hit a record high—its second this week—on Wednesday, ticking up 0.2% to 15,041. The tech-heavy index is up 18.5% this year, while the S&P has surged 21.5%, already outperforming last year’s gain of 18%. 

What To Watch For

Given a relative dearth in macroeconomic news, investors have been laser-focused on the Federal Reserve’s annual economic symposium, which is slated for Friday. Many hope Fed Chair Jerome Powell won’t announce a dramatic policy shift, and concerns the central bank could stop propping up the economy with $120 billion in monthly asset purchases and historically low interest rates have already rattled markets several times this year. In a Monday note, Goldman Sachs analysts said they believe the Fed by November will announce a decision to taper, or reduce, their monthly asset purchases by about $15 billion. “If and when the Fed does finally utter the T-word (taper), we would expect the market to take a step back,” Wells Fargo wrote in its Tuesday note to clients.

Crucial Quote

“The stock market remains excessively bullish and is still ripe for its first 5% pullback in almost a year as a potential peak in stimulus is here,” Oanda Senior Market Analyst Ed Moya wrote in a Tuesday afternoon email. “Fed Chair Powell’s [Friday] speech will likely emphasize the economic recovery is well past the crisis and that the central bank will shortly announce they are ready to taper asset purchases.”

Contra

Not all experts, however, believe the S&P has room to grow: On Wednesday, Reuters found more than 40 investment strategists, on average, believe the S&P will end the year virtually flat from current levels, with Synovus Trust’s Dan Morgan saying the “huge amounts of government stimulus” driving market gains “can’t last forever.”

Further Reading

Dow, S&P 500 End Week At New Record Highs—But This Potentially ‘Painful’ Risk Could Spark A 15% Crash (Forbes)