Wall Street is heading into the final stretch of the second-quarter earnings season riding the strongest pace of profit growth in five years -- alongside fading bets on a Federal Reserve interest-rate hike, which should support stock performance deep into the autumn.
The market's most-watched analysts, however, are still forecasting end-of-year price targets for the S&P 500 that suggest meager gains over the coming months -- even as they predict impressive profit growth over the coming quarters, without fretting too much about the amount investors will pay for it.
With less than a tenth of the S&P 500 still set to report second-quarter financials over the coming weeks, collective second-quarter earnings are set to rise more than 31% from last year to around $740 billion, according to data from LSEG.
That would mark a massive increase from the 23% gain projected in early June, and with the 29.4% gain recorded over the first three months of the year, would be the strongest first-half tally since the post-Covid era of 2021.
Gains in the high 20% range are also forecast for both the third and fourth quarters, which would bring full-year growth to around 33.3%, or $360 a share in S&P 500 terms.
End-of-year price targets for the benchmark, however, remain muted, with the average forecast somewhere in the region of 7,900 points, a level that suggests a mere 1.5% gain over the next three and a half months.
Ed Yardeni, founder and president of Yardeni Research, however, sees the S&P 500 reaching the 8400 point mark by the end of the year during what he has called the "fabulous earnings momentum" of the broader market.
That would suggest an 8% gain from Friday's close, taking the full-year advance to nearly 23%.
"Any pullback (and even a meltdown) will be a buying opportunity and won't trigger a recession or bear market similar to the 1999-2000 Tech Bubble and Tech Wreck," he said in a note.
At the other end of the scale, however, is Bank of America's Savita Subramanian, who has held to a 7100 point price target for the benchmark for much of the year, and updated her view in mid-June.
"We are neutral to negative equities at the index level, primarily due to a bearish call on the megacap tech cohort," she told Barron's during an interview last month . "I don't see any reason to continue to buy Magnificent Seven or megacap tech stocks that are the capex spenders."
The four biggest hyperscalers -- Microsoft, Amazon, Alphabet, and Meta Platforms -- expect to top $750 billion this year and at least $1 trillion next year, based on their June quarter updates.
But an index of Mag Seven stocks has risen around 3.2% since that interview was published, a move largely in-line with the broader S&P 500 over that same time frame -- and only modestly shy of the 3.5% advance notched by an equal-weighted version of the benchmark.
So far this year, the Mag Seven index has gained just 4%, while the S&P 500 is up around 14% and the equal-weighted index has gained about 16%.
That suggests that other sectors will need to set the pace if the benchmark is to reach a kind of "escape velocity" that will propel it to the 8000 point level and beyond.
We're seeing some of that now, with healthcare and financial stocks posting impressive gains over the past three months -- nearly double those of the information technology sector in that span.
But healthcare and financials represent only one-fifth of the benchmark's overall weight, compared with 36.8% for information tech and 20% for the tech-heavy communications services and consumer discretionary sectors.
In other words, Wall Street's price target caution could be linked to worries that the tech sector gains have already been booked -- and that even a broadening of earnings growth and stock performance won't be strong enough to power the S&P 500 notably higher over the back half of the year.
Next year's earnings growth may be notably slower, with projections of around 13.6%, according to LSEG data, a pace that would be less than half of this year's expected tally.
That may be food for thought as the market approaches the fourth year of the massive AI-led rally that began in October 2022 -- and has added more than 117% to the S&P 500 since.
"You have to go back to the 1960s to find the last bull market that made it to three years old but didn't make it to four," said Ryan Detrick, chief market strategist at Carson Group.
"Over the past 50 years, five bull markets made it past year three, and every single one of them made it to at least year five," he added. "While that's a small sample, this bull market very well could continue to frustrate the bears for much longer."
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