The S&P 500 Index – a measure of broader market performance, has been on a tear this year, thanks to inflation’s downward trajectory that allowed the Federal Reserve the leeway to cut rates, the resilient economy and robust corporate profit growth. With the year approaching its last leg, the question in the minds of everyone is whether the broader uptrend seen since the bear market bottom of Oct. 2022 would continue.
Gravity-Defying Rally: After the post-COVID-19 inflation surge sent markets across the globe lower in 2022, things began to take a turn for the better by the end of the year. The launch of OpenAI’s ChatGPT large language model-powered chatbot and the pullback in inflation from the June 2022 peak of 9.1% in response to aggressive Fed funds rate hikes helped restore sanity in the market.
The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the S&P 500 Index, has gained about 65% since bottoming at $346.35 on Oct. 12, 2022. This year alone, the ETF had soared nearly 21%.
Source: Benzinga Pro
S&P Goes Past Most Year-End Predictions: Wall Street’s year-end estimate for the S&P 500 Index ranges from 4,200 to 6,100, according to data shared by Trading platform TrendSpider on X, formerly Twitter. The highest estimate is from BMO Capital Markets and the lowest is from JPMorgan.
Financial data provider FactSet said in a recent report that the trailing 12-month price/earnings ratio for the S&P 500 Index is 26.7, above the 5-year average of 23.7 and the 10-year average of 21.7.
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Room For More Upside? Most analysts and strategists see the scope for further upside, contingent on the economy averting a hard landing. Recent data showing the softening of the labor market is the primary reason for the Federal Reserve to drop its cautious stance and announce a bigger and bolder cut. Going forward, the labor market data is the key that will guide the central bank on future rate moves.
With the rate cut announced last week and two more 25 basis-point cuts anticipated this year, the market rally is expected to broaden. Analysts see small-cap and rate-sensitive stocks picking up momentum after lagging for an extended period, while they also expect the mega-caps that have so far spearheaded the rally, to hold up.
Uncertainty could prevail until the outcome of the Nov. 5 election is known, but the market could take advantage of the seasonal strength seen in the final few weeks of the year.
JPMorgan Global Investment Strategist Sarah Stillpass said in a report the September rate cut could bode well for equities. Since 1980, five of the 10 best years for the S&P 500 happened when the Fed was cutting rates without a recession, she said. She also noted that the Fed has cut rates 12 times when the S&P 500 was within 1% of its all-time high such as the current year. The market was higher one year later all 12 times, with a median return of 15%, she added.
In premarket trading on Monday, the SPY edged up 0.08% to $568.69, according to Benzinga Pro data.
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