The S&P 500 index, a representative US stock market index, is projected to rise to the 6100 level by the end of this year. This outlook is based on expectations of a broad rally continuing for the time being, fueled by the Federal Reserve's (Fed) initiation of interest rate cuts.
Investment bank BMO Capital announced on the 19th (local time) that it is raising its year-end forecast for the S&P 500 index from 5600 to 6100. This is the highest target price among major Wall Street investment institutions so far and was announced just one day after the Fed implemented its first interest rate cut since the pandemic at the September Federal Open Market Committee (FOMC) meeting.
In particular, BMO Capital's year-end target price suggests an additional upside potential of 6.7% from the closing price on the day the S&P 500 index hit an all-time high. The S&P 500, which is centered on large-cap stocks, has already risen about 28% this year.
Brian Belski, Chief Investment Strategist at BMO Capital, explained in a research note, "As when we raised the target price in May, we continue to be surprised by the strength of the market rally," adding, "We decided to raise it again because we believe more than just a gradual correction is needed." He predicted, "The market is likely to record a stronger-than-usual fourth quarter, especially as the Fed has shifted to a monetary easing mode."
The day before, the Fed initiated a full-fledged monetary easing cycle by making a 'big cut,' lowering the benchmark interest rate by 0.50 percentage points from 5.25?5.50% to 4.75?5.50%. According to Evercore ISI, since 1970, the S&P 500 index has risen an average of 14% in the six months following the first rate cut of a monetary easing cycle. Prior to this, Deutsche Bank also raised its year-end S&P 500 forecast to 5750.
Belski stated, "Although the S&P 500 index fell more than 4% in the first eight trading days of September, fitting the nickname 'worst month,' almost all losses have since been recovered," and expressed confidence that "even if the market enters a bottom test by the end of this month, the upward trend will be sufficient through year-end." He also noted that unlike last year's bull market, which was heavily concentrated in the Magnificent 7, the recent rally has been more broadly based.
Meanwhile, despite the Fed's big cut (a 0.5 percentage point reduction in the benchmark interest rate) the previous day, the three major New York stock indices closed slightly lower but ended the day higher on improved investor sentiment. As expectations for a soft landing of the US economy grew, the Dow Jones Industrial Average and the S&P 500 index both hit record highs. All of the Magnificent 7 closed higher, with Tesla's gains exceeding 7%. AI leader Nvidia rose 3.97%, Meta Platforms increased 3.93%, and Apple jumped 3.71%.
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