On Wall Street, the S&P 500 breaks new records, will it reach 6,000 points this year?

From the October 2023 low, the S&P 500 added 1,370 points or, in dollars, US$11.5 trillion in market capitalization. In other words, The SPY netted something like $1.4 trillion per month over the last eight.

Also Citigroup improved its outlook for this index and increased its forecast for the S&P 500 at the end of the year to 5,600 points.

Many arguments can be found about the quality and constitution of the index, because it has a greater weight of technology companies, which generate a lot of cash and have a high return on invested capital. That would lead one to think that the market is overheated.

Wall Street: the end of a bullish cycle?

Regarding what is coming for this star index, Diego FerroCEO of M2M Capitalcomments to Ambit that, today, all analysts consider that we are far from an end to the “bullish” economic cycle.

For Ferro, valuations are not cheap and no one believes that the market is, but he assures that “Yes, there is the feeling that the US economy did better than analysts expected”. And, from that point of view, whether the S&P 500 reaches 6,000 points or not would depend on two issues, which are perhaps the most relevant within the United States: “what the Federal Reserve does with rates and the definition of the November elections”.

Regarding the Federal Reserve, if it somehow executes more aggressive rate cuts, which Ferro finds “very difficult“, the market would take a leap good up based on that. In the same way, he explains that if there is a less aggressive rate cut, it would also boost the market, but not enough for the S&P 500 to reach levels as high as predicted.

S&P500: 6,000 points “are not unreasonable”

While, Nicolas RosetGlobal Strategist at Cohen, maintains that the target of 6,000 points for the S&P 500 by the end of 2024, “It’s ambitious, but not crazy, given the consolidation of the US market in the face of global weakness.”

Roset explains to Ambit that the index reached 5,400 points with an increase of 14% so far this year, driven by “growth” companies, which have experienced accumulated growth of 18%, “especially in technology companies, such as Nvidia, Microsoft and Apple”.

Likewise, in line with Ferro, he adds that the solid economic data, such as low inflation and robust labor market and good growth, “support the fundamentals of these companies and fuel bullish expectations.”

However, the strategist warns that there are potential challenges that could test this optimism and at this point the “driver” of the elections appears again between Joe Biden and Donald Trump and “the growing budget deficit,” which are factors that could generate uncertainty in the coming months.

At a global level, Roset slips that trade and political tensions with China represent “systemic risks that could derail current optimism and negatively impact the S&P 500”.

For Pablo Repetto, head of Research at Aurum Valores, the goal of 6,000 points also seems “ambitious.” This, according to the analyst, arises from the fact that there is “a process of overbuying, in general, according to some investor surveys, and that The main drivers of the latest increases are concentrated in a few companies”, as mentioned.

Furthermore, Repetto warns that it must be taken into account that, if the Fed’s action is successful, activity will (at least) slow down considerably and, if it is not successful, perhaps the body in charge of Jerome Powell should act more aggressively of what is discounted by the market (either at the times in which high rates would remain or at their level).

USA: inflation has not dissipated and is still there

The analyst also warns that asset inflation is a symptom that policy remains less restrictive than it seems, so it does not rule out that the Fed seeks to moderate that positive financial sentiment.

Repetto recalls that, on the other hand, inflationary risks They have not finished and the expectation that Trump will emerge victorious in November could affect inflation expectations. On that side, The Fed will be hard pressed to lower the rate as the market believes.

“The push of some technology stocks may continue to push the S&P 500 up, but this can hardly be generalized to the entire universe of stocks“, says. And he assures that a factor to permanently monitor is the level of fiscal deficit due to “the Treasury’s need for financing and the volume of short-term maturities it faces.”

And he adds: “If they seek to extend the “duration” they will have to pay a higher rate and, in that sense, the discount rates of business income expectations would rise and valuations could be affected.”

So, Whether or not the S&P 500 reaches 6,000 points will depend on a series of factors, both economic and political. Therefore, investors must carefully weigh the risks and rewards before making any investment decision, as it is worth remembering that the stock market is unpredictable and that even the most expert analysts cannot predict its future with certainty.