The Slow-Mo Melt-Up: Hello 6000

6000 too conservative

Yardeni says this slow-motion meltup has further to run and could see their 6000 SPX target for 2025 being too conservative. 

"Eric, Joe, and I aren’t raising our year-end target for the S&P 500 just yet. But we are learning to live with the S&P 500 outpacing even our bullish projections. It did so last year: Our year-end target of 4600 was reached on July 31, 2023....Now we are rethinking whether our current projections of 6000 by the end of 2025, 6500 by the end of 2026, and 8000 by the end of the decade might be too conservative. The market may be discounting our Roaring 2020s scenario faster than we expected."

Is that really a breadth problem?

"Like everyone else, we would like to see a broadening of the bull market from the S&P 500’s MegaCap-7 (i.e., Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) to the rest of the index, i.e., the S&P 493. The former is up 118.6% since the start of the bull market, while the latter is up 36.4%. That’s still a bull market excluding the MegaCap-7. In other words, part of the breadth problem is that the prices of seven stocks have increased much faster than those of the rest of the S&P 500. Is that really a breadth problem?"

Source: Yardeni

What's not to like with Generals leading...?

On the topic of "breadth" - Bobby Molavi wonders what there is not to like with big getting bigger.

"In 2021 $1 trillion was the benchmark for the market 'leaders'....now we have several at or around $3 trillion. That narrowness means meant that as long as the generals are strong...the rest of the playing field matter little for headline index strength. When you add to that the safe haven aspects of these leaders....plus the buyback support....plus the indexation/correlation momentum chase...you can in part explain how the big...continue to get bigger. As a result we see a growing divergence between what data and the consumers are telling us...and what the market is doing. The market ceasing to be an effective totemic instrument for gauging economy/investor trend/sentiment…as it gravitates towards being the amalgam of 5 to 7 stocks performance more than anything else." 

Reason 1 to be less worried: Forward earnings

S&P 500 forward earnings rose to a new record high of $261.74 during the July 4 week. The Q2-2024 earnings reporting season is starting and should go well. This all assumes–as we do–that a recession is unlikely anytime soon, especially since the Fed will lower interest rates to avert one if necessary.

Source: Yardeni

"Why are stocks up so much this year?"

Just to hammer home the earlier point on earnings. The chart that shows how forward earnings expectations continue to move up is impressive.

Source: Carson

Reason 2 to be less worried: Earnings & stock prices breadth

The percent of S&P 500 companies with positive three-month percent changes in forward earnings rose to a bull-market high of 83.0% during the July 5 week. That argues for a broadening of the stock market's breadth.

Source: Yardeni

Reason 3 to be less worried: Valuation

"The S&P 500's forward P/E measure of valuation is stretched, though that's largely attributable to the MegaCap-7. During June, the market-cap forward P/E was 21.2 while the median forward P/E was 17.8. In our opinion, the broad market is not overvalued, and could rise through the end of the decade on a combination of better earnings and a higher valuation multiple."

Source: Yardeni

Stocks are probably, broadly headed higher

"Stocks are probably, broadly headed higher. Sure, probably not at the pace seen early this year, but the SPX just isn’t trading at unreasonable levels. We ran a regression of the SPX vs. consensus NTM EPS estimates and show that based on a ~15Y history, the SPX might be trading ~8% above its warranted level. That might sound like a lot, but: 1) our model is inclusion of periods of economic slowdown, which make expansion look ‘overvalued’ and 2) upward earnings revisions help drive the distance to ‘warranted’ levels back down." 

Source: Jefferies

Source: Jefferies

The chart keeping short sellers up at night

Imagine the short pain should this kick in as well....

Source: Equity Clock

Stocks vs bonds

Over the past 7 years, nearly all of the 9% annualized return in the 60/40 US stock/bond portfolio has come from the stock side, with the S&P 500 gaining 14.3% per year versus just 0.9% per year for bonds.

Source: Bilello

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