S&P 500 Index Rises About 15% in First Half
5 Mega-Cap AI Stocks Lead the Gains
Equal-Weighted Calculation Shows Only About 4% Increase
JPMorgan Says "This Is a Historically Ominous Signal"
Amid the U.S. stock market's upward trend in the first half of this year fueled by the wave of artificial intelligence (AI), Wall Street has issued a warning that a full-fledged 'bear market' could emerge starting in the second half. This analysis contrasts with many global investment banks (IBs) that have been raising their year-end S&P 500 index targets one after another.
According to the IB industry on the 1st, Kevin Gordon, Chief Investment Strategist at Charles Schwab, the largest securities firm in the U.S., viewed the fact that about 60% of the leading stocks driving the S&P 500's approximately 15% rise in the first half were five mega-cap companies related to generative AI?NVIDIA, Microsoft (MS), Amazon, Meta Platforms, and Apple?as a sign of a bear market.
According to Gordon's analysis, the 'S&P 500 Equal Weight Index,' calculated by assigning equal weights without stock concentration, rose only about 4% in the first half. This suggests that sectors excluding AI, such as industrials and financials, lagged behind in the rally. He explained, "This indicates growing signs of weakness occurring beneath the market surface," and "risk signals appear when the rest of the market (excluding mega-caps) struggles."
Marco Kolanovic, Chief Global Market Strategist at JP Morgan and a leading bear market advocate on Wall Street, also said, "The market rising centered on a few AI-led companies like NVIDIA is historically a bad omen," adding, "Cooling labor markets, declining home sales, and increasing consumer delinquencies suggest that a recession is imminent." Based on this analysis, he predicted that the S&P 500 index could fall about 25% from its current level by year-end.
Barry Bannister, Senior Equity Strategist at Stifel, forecasted that due to growth weakness and persistent inflation, the S&P 500 index would decline about 13% from its current level by year-end.
Peter Berezin, Chief Equity Strategist at BCA Research, estimated that "the U.S. economy could enter a recession within nine months," and if a recession occurs, the S&P 500 index could fall to around 3750. This implies a potential drop of about 31% from the current S&P 500 level.
Bearish analysts also pointed to the price-to-earnings ratio (PER) of the S&P 500 index, which stands at about 25 times, as a sign of a market peak. The PER, calculated by dividing the stock price by earnings per share, indicates overvaluation when high, and the current S&P 500 PER is above its historical average.
Meanwhile, contrary to these views, several IBs have been raising their year-end S&P 500 index targets one after another. Evercore ISI significantly raised its target last month from 4750 to 6000. This means the S&P 500 index could rise about 10% more over the next six months, drawing attention as the most optimistic analysis on Wall Street. During the same period, Morgan Stanley raised its target from 4500 to 5400, Citigroup from 5100 to 5600, and Goldman Sachs from 5200 to 5600.
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