Commentary

S&P 500 momentum keeps going

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As the index continued to move higher, analysts are now piling up on new targets for the index. Indeed, the index has been able to weather several headwinds for the year. From the interest rate hike fear to the banking crisis, it had rebounded swiftly in each episode.

Simply put, buyers keep swarming in to accumulate in each episode of pullback.

What’s the new target?

Citigroup strategists are among the most bullish group. They are now expecting the index to climb to 5000 by June 2024. That is a remarkable jump from the initial target of 4400 and a 9% upside from the current level of the S&P 500 (around 4600).

What is the driving force behind this euphoria run?

To pin down the main contributors, we can look at two broad factors: the artificial intelligence narrative and the Federal Reserve.

Artificial Intelligence

On the AI part, the wide spread of technological improvement has expanded the goods and services for such AI-applied use. Therefore, this lifted the growth prospect of major tech companies such as Apple, Nvidia, Amazon, Tesla, Microsoft and Meta.

Federal Reserve

Then we have other stocks that cheer the market together with the bull, although the reason is different. The expectation that the Fed will soon reach its final leg of the rate hike as inflation falls is a dovish stance for many analysts. The economy is also showing a firm resiliency.

While one would expect the monetary tightening policy to hit the economy into recession and dampen economic demand, there are few signs of such a profound impact on the economy. Hence, the Fed appeared to have engineered a “soft landing”, essentially the idea of lowering inflation without bringing a meaningful economic slowdown.