A version of this post first appeared on TKer.co
Stocks climbed last week with the S&P 500 jumping 2.4% to close at 4,505.42. The index is now up 17.3% year to date, up 26% from its October 12 closing low of 3,577.03, and down 6% from its January 3, 2022 record closing high of 4,796.56.
Before dipping slightly on Friday, the S&P closed Thursday at 4,510.04, the highest level since April 2022.
It’s worth noting the S&P is now above all the year-end targets Wall Street forecasters had coming into the year.
This speaks to how difficult it is to predict short-term moves in the market when the most well-resourced, full-time professionals at the highest tier of the industry find themselves on their heels.
What’s been driving the rally?
Well, resilient economic growth and the improving outlook for activity helps.
Cooling inflation and a Federal Reserve that’s getting less hawkish also helps.
Importantly, the improving outlook for earnings certainly helps.
“If earnings recover as the consensus expects, and if we do get a soft landing, then it’s possible stocks could be on the road to new highs,” Jurrien Timmer, director of global macro at Fidelity, wrote on Wednesday.
“Currently, the consensus estimate is that S&P earnings will contract by 9% in the second quarter and then bottom in the third quarter of this year, before recovering in 2024,” he added. “If that is correct, then the rise in stocks and increase in P/Es that we have seen since last October could be justified and could continue.”
Indeed, we are in the midst of a widely anticipated mild earnings recession. But as stocks are wont to do, they appear to be pricing in the future more so than the present or past.
Nevertheless, the sentiment among Wall Street’s stock market forecasters is anything but frothy.
Even though many Wall Street strategists have revised up their 2023 targets for the S&P 500, many expect the index to end lower by the end of the year. According to Bloomberg, the average strategist’s target implies a 6.6% decline in the S&P during the second half of the year.