How to get to 6300 in S&P500
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Catch me if you can
Goldman tweaks up SPX price target to 5600 but the interesting reading is in the upside scenarios.
1. In a “catch-up” scenario, the S&P 500 index would end the year at 5900. The equal-weight index multiple would expand to 18x, matching its 2018 pre-pandemic high.
2. In a scenario of continued mega-cap exceptionalism, the S&P 500 index would end the year at 6300 (+16%). Assuming a 16x NTM P/E for the equal-weight index and a 45% P/E premium for the market-cap index, the aggregate S&P 500 would trade at a forward P/E of 23x, 16% above today (89th %ile of 6 month returns).
Source: Goldman
Not a bubble premium
Everyone is worried about that premium valuation vs equal weight - but Goldman shows that premium has been more extreme. Chart shows P/E premium of aggregate (SPX) vs. equal-weight (SPW) S&P 500 indices.
Source: Goldman
Narrow markets: Love it
BofA Quant team weighs in: "Mega-cap leadership alone is not cause for alarm. Mega-cap leadership years were followed by gains approximately 75% of the time."
Source: BofA Quant
Mega cap tech floats the boat
Nothing new here, but always worth remembering what the DRIVER of stocks has been. Positive EPS revisions for mega cap tech vs. cuts to S&P 495 EPS. And that it will continue as you see in the next post.
Source: FactSet
Better growth for years to come
Mega-cap tech EPS growth premium is expected to narrow - but still crush the rest of the market all the way to 2026.
Source: Goldman
Could the Fed really cut at all time highs?
"Of course, with major indices as buoyant as they’ve ever been, some investors may wonder whether the Fed could really cut with stocks at all-time highs? The answer is yes – they’ve done it 20 times since 1980 and the SPX was higher a year later all 20 times. Bulls will be putting their faith in history while bears might argue we’ll only see this magnitude of cuts if something is “broken” – it remains to be seen whether it’ll be the former or the latter…" (Nick Savone, MS)
Party like it is 1995
"We think this year has a 1995 flavor to it. 1995 was last time we got a soft landing. The fed cut from 600bps to 525bps. S&P 500 made 77 ATHs in 1995 and that was just the appetizer w/ the epic run through...you guessed it...1999. YTD the S&P 500 already has 29 ATH closes (and the best start to an election year ever"
