JPMorgan, BMO Latest to Raise S&P 500 Targets

  • Strategists attribute further gains to central bank doves
  • Average S&P 500 estimate among strategists climbs to 2,169

Investor Excitement as a Reason for Worry in Markets

For Wall Street strategists, it’s getting harder to fight the Fed.

After more than two months signaling that U.S. stocks had nowhere to go this year but down, strategists have turned more upbeat, with a handful raising their year-end targets for the S&P 500 Index in recent weeks. The latest capitulations came from JPMorgan Chase & Co.’s Dubravko Lakos-Bujas and Bank of Montreal’s Brian Belski, spurred by the Federal Reserve’s decision to keep rates lower for longer. 

The collective moves have lifted the average estimate of 19 strategists tracked by Bloomberg to 2,169 from the 2,150 level that held since the U.K.’s secession vote in June. The S&P 500 slipped 0.2 percent to 2,169.41 at 12:09 p.m. in New York.

It’s a rare event when Wall Street equity strategists say the U.S. stock market is poised to decline -- they’ve been bullish 82 percent of the time during the past decade -- though that’s just what’s been going on as the S&P 500 hovered near all-time highs amid one of the calmest stretches ever on U.S. stock markets. After a recent bout of volatility, stocks are poised for the best week since July as the Fed’s decision sparked a rally in riskier assets.

“By not hiking rates, the Fed provided the markets with precisely what they had been expecting, and in doing so, removed a significant downside surprise,” Belski, chief investment strategist at BMO Capital Markets, wrote in a note to clients Thursday. “As a result, we see no catalyst for a major market correction or meltdown between now and yearend.”

The BMO strategist lifted his projection to 2,250 from 2,100, implying the S&P 500 will climb 3.3 percent by the end of the year. Lakos-Bujas, one of the biggest bears in the Bloomberg survey, raised his estimate by 100 points to 2,100, which suggests the index will retreat 3.5 percent by Dec. 31.

Lakos-Bujas’s pessimism stems from his assertion that stocks are too pricey -- the S&P 500 trades at about 20 times earnings, one of the highest valuations since the dot-com era. Still, the accommodative Fed and the likelihood for an improvement in corporate earnings will prevent a major selloff in equities, the strategist wrote in a note to clients Friday.

“We believe stabilizing USD and oil prices over the last year, and generally low expectations going into this earnings season improve the odds of more companies beating on revenue and margins,” Lakos-Bujas wrote.

Wall Street appears to be in unison over the impact of the Fed’s decision to stand pat on its rate policy. The move was was deemed supportive for stocks by Fundstrat Global Advisors Co-founder Thomas Lee. The market’s biggest bull, Lee reaffirmed his view this week that the S&P 500 will end the year at 2,325, an increase of more than 7 percent.

Weeden & Co.’s Michael Purves on July 28 was the first to raise his target in the wake of the U.K.’s Brexit vote. Since then, Gina Martin Adams at Wells Fargo & Co. boosted her 12-month outlook, and Morgan Stanley & Co.’s Adam Parker lifted his target.

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