- The stock market is up nearly 20% so far this year, officially ending last year's bear market.
- Few on Wall Street expected the surge — except Fundstrat's Tom Lee, Carson Group's Ryan Detrick, and market veteran Ed Yardeni.
The stock market's year-to-date rally of nearly 20% surprised just about everyone on Wall Street — except Fundstrat's Tom Lee, Carson Group's Ryan Detrick, and market veteran Ed Yardeni.
All three strategists saw something most others did not, mainly that easing inflation and the avoidance of a recession would help power stocks out of the 2022 bear market and towards new 52-week highs.
Wall Street is starting to catch on, with many strategists raising their year-end S&P 500 price targets. So far this year, a dozen have boosted their price targets, but they're still too low, according to data compiled by Bloomberg.
In January, when the S&P 500 was around 3,900, the average 2023 year-end target was just 4,050. Fast forward to today, and the average has risen to 4,245, representing downside of 7% from current levels.
But Lee, Detrick, and Yardeni don't see it that way, and they're getting even more bullish than their peers. Here's what they expect in the second half of the year.
1. Fundstrat's Tom Lee
In early July, Lee raised his S&P 500 target to 4,825 from 4,750, implying a full-year rally of about 26%.
"The rise in stock prices over the past 9 months is the start of a new bull market. This new bull market will be driven by AI advancements and the Fed's successful efforts in curbing inflation," he said, adding that valuations are "hardly demanding" when you exclude the mega-cap tech stocks.
"We believe P/E should expand as companies are viewed as resilient and we are at the start of a new EPS cycle," Lee added. "AI could be the start of a supercycle. And Nvidia first-quarter results were the 'aha' moment. The timing makes sense. AI also solves the inflation problem. By the way, doesn't this justify the surge in FAANG? Not as a bubble but as the sign of the emergence of this cycle."
2. Carson Group's Ryan Detrick
Detrick recently boosted his S&P 500 price return expectations to a range of 21% to 25% from a prior estimate of 12% to 15%.
"We see the potential for stocks to continue to outperform bonds and potentially make new all-time highs with more good news," he said.
A resilient economy, with no recession in sight, means consumers can keep spending as the Fed continues to bring down inflation, according to Detrick. And that means corporate earnings, the main driver for stock prices, should continue to hold up. Also helping corporate profits is a weakening US dollar, he highlighted.
"The underpinning of the global economy remains firm, and we'd expect whatever is thrown at it to do little more than cause some near-term volatility," Detrick said.
3. Ed Yardeni of Yardeni Research
Earlier this month, Yardeni upgraded his S&P 500 forecast to as high as 5,400, with the objective to be reached by the end of 2024. That represents potential upside of 19% from current levels.
Yardeni's bullishness is backed by his S&P 500 earnings-per-share estimates, which could get as high as $270 in 2025. Those estimates, combined with his 5,400 forecast, imply a forward price-to-earnings ratio of 20x, about in line with today's forward P/E of 19.5x.
He has argued the economy entered a "rolling recession" last year that slowly impacted different industries, but a "rolling recovery" has started that should power more upside.
"A meltup would most likely be led by the S&P 500/400/600 Information Technology stock price indexes which are all on the verge of breaking out to new record highs," Yardeni said.