Hot dog! The U.S. stock market is on fire, and it’s facing a major test from the Federal Reserve next week. Hold on to your hats as the Fed is gearing up for what might be the last hurrah of its aggressive money-tightening spree in, like, forever.
At the start of the year, folks were predicting doom and gloom with higher interest rates causing a brutal stock market downturn after the rocky ride of 2022. But guess what? The U.S. economy is showing some serious backbone, even as the Fed is tackling inflation head-on. It’s like a “Goldilocks scenario,” just right for the stock market bulls. The S&P 500 is up a whopping 19% year-to-date and dang close to its all-time high back in January 2022, only about 6% away.
The big question now is, what will the Fed do at its upcoming meeting on July 26? Most folks expect them to raise rates by 25 basis points, but what we’re really hoping for are signs that they’re feeling confident about taming inflation. That could mean they won’t need to keep raising rates too much, and that’s like music to the stock market’s ears!
Oh, and let me tell ya, the market’s mood is shifting. Some analysts are raising their target for the S&P 500 by a long shot. It’s like they’re looking through the crystal ball and seeing big numbers. Credit Suisse’s Jonathan Golub now sets his sights on 4,700 from 4,050, thinking the economy will flex its muscles, and tech and communication services will bring in some serious cash.
But wait, there’s more! Tom Lee from Fundstrat Global Advisors has even bigger dreams with a year-end target of 4,825. And Ed Yardeni from Yardeni Research is reaching for the stars, seeing the S&P 500 at 5,400 within the next year and a half. Can you believe it?
And the fun doesn’t stop there. The National Association of Active Investment Managers’ gauge shows that stock pickers are diving in headfirst, with the highest exposure to equities since way back in November 2021, when the Fed first started tightening the money tap.
Liz Ann Sonders from Charles Schwab is practically dancing in her chair, saying, “Bearish investors have had to wave the white flag.” She’s seeing all the ingredients for success – lower inflation, a strong economy, happy consumers, and a dollar on a dive – the perfect recipe for sweet gains.
Over at U.S. Bank Wealth Management, Eric Freedman is feeling the heat too. He’s pumped up his stock holdings and is banking on the tech sector shining bright as the economy stays tough.
But it’s not all sunshine and rainbows. Some folks still see storm clouds on the horizon, cautious about the ongoing earnings season and how inflation might throw us a curveball.
Northern Trust’s senior portfolio manager, Sunitha Thomas, thinks inflation is a tricky one, like a sneaky ninja, and might stick around longer than expected. So she’s been playing it safe, reducing her exposure to stocks in recent months and advising clients to take a breather.
Oh, and let’s not forget about those rising valuations! The S&P 500 is now trading at a hefty 20.8 times forward earnings, up from 16 times at the beginning of the year. It’s like a rollercoaster, up, up, and away!
But Christopher Tsai from Tsai Capital isn’t breaking a sweat. He’s not afraid to ride the overvalued wave. In fact, he’s jumped on board with eight companies, like MSCI Inc and Zoetis Inc, that he thinks are hidden gems.
“It’s like trying to find a needle in a haystack to find massively overvalued names,” he said with a grin.
So there you have it, folks. The U.S. stock market is in for a wild ride as the Fed makes its move. Will it be a smooth sail with inflation under control, or will we hit some turbulence along the way? Only time will tell, but one thing’s for sure – it’s gonna be a wild and crazy show! Hang on tight!