Why JPMorgan's trading desk says a new record high in the S&P 500 'feels inevitable'

• A group of analysts from JPMorgan's trading desk say a new record high for S&P 500 "feels inevitable."
• Huge money waiting on the sidelines makes a technical correction seem unlikely, they said.

The S&P 500 has already had a blistering first half of 2023, and there's reason to believe a new record high might just be all but guaranteed at this point.

Analysts from the bank's trading desk led by Andrew Tyler, head of US market intelligence, wrote in a Tuesday note to clients that stocks look poised to keep climbing, largely thanks to upbeat news on growth and inflation.

"As we turn the page to August, it does feel that we are seeing the market become both consensus bullish and well as consensus in making a call for a pullback before resuming the upward trend," the note reads.

The S&P 500 closed at 4,576.73 on Tuesday, less than 5% shy of its record closing level of 4,796.56 reached in January 2022.

While there's been some recent capitulation in equities as some investors fear the possibility of the Federal Reserve breaking something in the economy, ultimately there's reason for bullishness, the analysts said.

"It does appear that there is money on the sidelines waiting for an opportunity to come into US stocks, among other region," the trading group wrote. "This last statement is another reason that a technical correction, or worse, seems so unlikely when consider that macro data typically does not deteriorate as quickly as that scenario would suggest."

In other words, more data that illustrates economic growth and better earnings should push stocks further into the green.

Inflation eased in July to 3% annually, and while that's still higher than the central bank's 2% goal, it's fallen far from last year's 9.1% peak, sending investors rushing to the stock market.

For stocks to move even higher, it would take improving GDP growth and earnings growth, without any more Fed hiking, the analysts said. The fact earnings can beat expectations in an high-rate environment creates the argument for elevated valuations, in their view, and that could push the S&P 500 well beyond record highs.

"Taking out the [all time high] feels inevitable, just a matter of timing," the analysts added. "That said, touching 5k should not be a surprise especially if this a reacceleration higher of the macro data/econ cycle rather than just a reboot that shows choppy data trending lower."

While August and September are typically weaker-performing months, any near-term pullback should be capped off with stocks marching higher afterwards, according to the analysts.

Meanwhile, more signs of a cooling economy could prevent the Fed from hiking interest rates beyond the current 5.25%-5.5% range, and that supports the outlook for the much vaunted soft-landing scenario that seemed unlikely only a few months ago.

Anastasia Amoroso, iCapital's chief investment strategist, told Insider on Monday that all-time highs indeed look possible for the S&P 500 in the near-term. A no-recession scenario, she explained, bodes well for stocks.

"As long as slow but steady economic growth persists, earnings should deliver and could even surprise to the upside," Amoroso said. "And the Fed that's slowing or ending its rate hikes should support multiples. Steady multiples and fulfilled earnings expectations should be enough to justify the S&P 500 at 4,800 or above."