Veteran Analyst Revises S&P 500 Projections After New Highs
The S&P 500 achieved another all-time high on September 10, 2023, prompting renewed optimism among investors. This milestone follows a remarkable recovery since the spring, when market turmoil related to tariffs caused significant concerns. Since then, the index has surged over 30%, defying economic indicators that suggest a slowing U.S. economy, characterized by rising unemployment and inflation.
Despite these challenges, analysts remain hopeful. The anticipation surrounding the passage of the One Big Beautiful Bill Act earlier this summer is believed to bolster market confidence. Additionally, many expect that the Federal Reserve will respond to economic pressures by cutting interest rates in the coming months. This sentiment has largely overshadowed fears of stagflation, a situation marked by low economic growth coupled with rising prices.
Historical Insights Offer Encouragement
Sam Stovall, Chief Investment Strategist at CFRA, has over three decades of experience navigating market cycles. His analysis provides valuable context for understanding the current landscape. Stovall examined historical data regarding the S&P 500’s performance following new all-time highs.
In his research note, Stovall highlighted that after more than 600 instances of the S&P 500 reaching new highs, the index typically saw gains of 0.7%, 2.1%, and 3.8% over the subsequent 30, 60, and 90 days, respectively. Furthermore, the frequency of advances following these highs was recorded at 63%, 76%, and 78%.
Stovall also noted a more favorable trend when the S&P 500 hit new highs alongside the S&P Developed ex-U.S. Broad Market Index. In these instances, average price increases rose to 1.2%, 3.7%, and 4.9% after 30, 60, and 90 days, respectively, with frequencies of advance climbing to 70%, 82%, and 87%.
These insights suggest that while no outcomes are guaranteed, the S&P 500’s upward momentum may continue, indicating that investors should carefully assess their portfolio strategies before making drastic changes.
Federal Reserve’s Role and Market Implications
The market’s robust performance since early April has raised questions about the Federal Reserve’s monetary policy. With inflation and unemployment on the rise, the Fed faces the complex task of balancing economic growth and price stability. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) has experienced an upward trend since April, with July’s rate at 2.7%, up from 2.3% in April. Unemployment has also increased, reaching 4.3% in August, up from 4% in January.
Most analysts anticipate that these economic conditions will compel the Fed to implement a rate cut during its next policy meeting on September 17, 2023. Current market predictions indicate a 92% probability of a quarter-percentage-point cut. Such a move could significantly influence the stock market, as it would enhance liquidity for consumers and businesses.
Although the Federal Reserve does not directly set bank lending rates, the Federal Funds Rate serves as a benchmark for how banks lend to each other overnight. Changes to this rate have ripple effects on business and consumer loans, including credit card rates, potentially fostering revenue growth and supporting stock market performance.
In summary, while uncertainties persist regarding the U.S. economy, the insights from experienced analysts like Sam Stovall suggest that the S&P 500’s rally could endure beyond recent highs. Investors may want to approach their strategies with caution, keeping an eye on upcoming economic indicators and Federal Reserve decisions.
