JPMorgan still thinks the S&P 500 can rally another 12% this year as US consumer spending explodes for these 7 reasons

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  • Even as stocks sit near record highs, JPMorgan strategists see seven drivers lifting the market even further.
  • The bank reiterated its S&P 500 target of 4,400 on Friday, implying a 12% leap through the year.
  • Detailed below are the reasons the bank is still bullish, from strong household saving to a healthier labor market.
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Stocks leaped to record highs several times throughout the week. JPMorgan sees a handful of reasons even higher levels are in store.

Investors faced a fork in the road earlier this month. New stimulus backed by President Joe Biden and Democrats stands to supercharge the US economic recovery, but more conservative experts raised concerns the package could dangerously lift inflation. Traders largely ignored such fears, but stocks elevated valuations now pose a risk of their own.

Strategists led by Dubravko Lakos-Bujas maintain economic reopening and fresh fiscal support trump all. The team reiterated its S&P 500 target of 4,400 on Friday, implying a roughly 12% jump from current levels. The outlook already hinged on a strong consumer recovery, but several new factors bolstered the bank’s call.

Here are the seven reasons JPMorgan sees spending bouncing back and aiding the stock market’s rally.

(1) Swift reopening

Tumbling COVID-19 case counts and continued vaccine rollouts place the US economy mere months away from reopening much of its economy, JPMorgan said. The strategists expect the pandemic to “effectively” end over the next 40 to 70 days.

(2) New stimulus

Roughly $30 trillion in stimulus has aided the global economy through the pandemic, and Democrats are charging on with efforts to approve another $1.9 trillion package. That deal can further accelerate the rebound, particularly by prioritizing employment, JPMorgan said.

(3) Pent-up savings

US households are sitting on record cash reserves with savings totaling about $11 trillion, according to the bank. The unwinding of such funds can revive small businesses and spur new hiring.

(4) Ballooning wealth

Markets’ health through the pandemic can further boost Americans’ wealth. JPMorgan estimates rising values across home equity, pensions, and 401k plans will add up to $48 trillion in total net worth.

(5) Healthy household debt levels

Americans will also be coming out of the pandemic with robust balance sheets. The debt service ratio sits at a four-decade low, and delinquency rates for consumer loans are at historically low levels, JPMorgan said.

(6) Improved job market

A falling unemployment rate, growing average work week, and possibly higher minimum wage will all contribute to a healthier labor market, the strategists said. 

(7) Millennial bump

A record 5 million millennials will reach the inflection point of seeking homeownership, according to the team. Increased spending from this group will shift more savings into the economy.

Read more: JPMorgan says buy these 40 stocks set to soar as bond yields make a surprising jump higher

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The S&P 500 will climb another 10% as the Democrat-controlled government passes new stimulus, Credit Suisse says

US capitol
  • Credit Suisse analysts lifted their S&P 500 target to 4,200 from 4,050 on Thursday, citing Democrats’ victories in Georgia Senate runoff elections as key to ushering in additional fiscal stimulus.
  • The new target implies a roughly 10% climb from current levels.
  • The bank expects President-elect Biden to pass fresh fiscal support that includes another round of direct payments for Americans.
  • New stimulus “will further fan these flames” of pent-up consumer demand as the economy reopens, the team added.
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Democrats’ upcoming control of the US Senate paves the way for a new fiscal stimulus and healthy stock-market returns throughout 2021, Credit Suisse analysts said Thursday.

The team led by Jonathan Golub lifted its 2021 S&P 500 price target to 4,200 from 4,050 in a note to clients, implying a roughly 10% rally from current levels. The bank expects the index’s earnings-per-share to climb to $175 this year and reach $200 by the end of 2022.

Jon Ossoff and Raphael Warnock’s victories in Georgia Senate runoff elections bring Democrats’ seat count in the legislative body to 50, meaning any ties will be broken by Vice President-elect Kamala Harris. The shift in power gives Democrats unified control of the government for the first time since 2011 and gives Biden a far easier path for passing progressive policy.

Fresh fiscal support is likely among the President-elect’s first initiatives when he takes office later this month, Credit Suisse said. Democrats are poised to push for another round of direct payments, an extension to unemployment benefits, state and local government aid, and relief for healthcare workers.

Read more: A growth fund manager who’s beaten 96% of his peers over the last 5 years shares 6 stocks he sees ‘dominating their space’ for the next 5-10 years – including 2 that he thinks could grow 100%

A stronger stimulus response, when combined with a swift reopening, can accelerate the country’s economic rebound, the team of analysts said.

“While the timeline for vaccination rollouts has proven underwhelming, the likely avalanche of pent-up consumer demand cannot be ignored. Any additional stimulus will further fan these flames,” they added.

The bank upgraded several cyclical sectors to “overweight” from “market weight,” including industrials, materials, and consumer discretionary stocks. The groups are among those best positioned to benefit from the start of a new economic expansion and a return to pre-pandemic levels of activity, according to the bank.

The team downgraded the tech, consumer services, and internet retail sectors to “market weight” from “overweight.” Health care and financial stocks remain the bank’s “highest conviction overweights.”

Several other Wall Street giants similarly upgraded their outlooks for stocks and the US economy following Georgia’s elections. Bank of America economists said Wednesday that another $1 trillion in stimulus can “easily” boost US economic growth by one point to 6% in 2021.

Goldman Sachs lifted its 2021 growth estimate to 6.4% from 5.9% on Thursday, citing its expectation for a $750 stimulus package being passed in the first quarter.

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Read the original article on Business Insider