Analysts at SocGen told investors in a note Thursday to keep buying the S&P 500 as “US exceptionalism is going from strength to strength.”
The bank’s comments follow the Federal Reserve meeting on Wednesday, which saw the US central bank hold steady on interest rates and stick with its forecast for three interest rate cuts this year.
Fed Chair Jerome Powell still projected some caution over sticky inflation. However, market participants were encouraged by Fed officials keeping their forecasts for lower rates this year. Powell also noted the continued resilience in the U.S. economy, which is a trend that bodes well for corporate earnings.
S&P 500 rallies on dovish Fed
The news and subsequent comments from Federal Reserve Chair Jerome Powell helped to lift the S&P 500, which closed above 5,200 for the first time on Wednesday.
The S&P 500 closed 0.9% higher in Wednesday’s session to a record of 5,223.46.
Meanwhile, US futures are also in the positive, with S&P 500 futures currently showing a 0.4% gain at 5,245.3 as of 7:22 am ET on Thursday. The Nasdaq closed 1.25% higher on Wednesday. Nasdaq futures have climbed 0.8%.
S&P 500 rally to continue - SocGen
Analysts at SocGen said the macro themes continue to improve in the US.
The firm noted the “reshoring ‘boom’” that led them to turn bullish on Industrials in November 2022, the Nasdaq-100’s artificial intelligence ‘boom’ that prompted their bullish view in June 2023, and now the improving credit conditions and lending standards, which have led them to upgrade US Financials for the first time since December 2021.
“Despite widespread market optimism, we view this as rational rather than excessive, as profit growth continues to increase and set new records for the S&P 500,” wrote SocGen.
The firm upgraded its S&P 500 target level to 5,500, saying that although the best returns may be behind us, the outlook remains positive.
“The S&P 500 has gained 8% year-to-date and 30% since the peak in bond yields at 5% in October 2023. Such strong gains are unlikely to be matched in the short term, in our view, as the current valuation re-rating already reflects Fed rate cuts,” added SocGen.
“However, markets may not de-rate until the Fed starts hiking (not a 2024 story) OR profits start to slow (again, not a 2024 backdrop). We upgrade our S&P 500 2024 year-end target to 5500 from 4750, as we expect 6% upside additional by the end of the year.”
When it comes to sectors, SocGen has stayed bullish on US Industrials and Technology since its 2023 outlook in November 2022 and has extended this view through the first half of 2024. They believe EPS growth now has “a lot more catching up to do from outside the Nasdaq-100,” and the firm upgraded Financials as it extends its cyclical growth bias.