S&P 500's H1 Rally Exceeds Forecasts: Is Market Set For Extended Bull Run?

The market has shown resilience this year, defying economic uncertainties surrounding growth and interest rates.

On The Rise: The S&P 500, a broad market gauge, concluded 2022 with a 19.4% decline at 3,839.50, with technology stocks leading the retreat.

At the beginning of this year, analysts held limited optimism about the index surpassing these levels. Some even predicted a lower end to 2023 compared to the previous year.

Data from Hedge Vision revealed that the average price target set by 23 analysts/economists for the S&P 500 at the start of the year was $4,080. The most bullish forecast came from Tom Lee of Fundstrat, who predicted a year-end index value of 4,750, suggesting a 23.7% upside.

Greg Boutle of BNP Paribas had the most conservative estimate, at $3,400, indicating an 11.5% decline.

Interestingly, only three of the 23 analysts had price targets above the S&P 500’s current levels.

The index closed Thursday’s session at 4,396.44, up 0.45%. The SPDR S&P 500 ETF Trust (NYSE:SPY), which tracks the index’s performance, ended Thursday at $438.11, up 0.39%, according to data from Benzinga Pro.

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Driving the Rally: The market has largely disregarded the Federal Reserve’s warnings of more rate hikes and has priced in the unwinding of the aggressive rate hikes implemented since March 2022.

Despite the cumulative impact of the rate hikes, pockets of strength have emerged in the economy. The labor market remains robust, and consumer spending has held up well, although concerns persist in commercial real estate and housing markets.

Corporate profits have also fared better than expected, thanks in part to the positive impact of artificial intelligence technology. Big tech companies such as Nvidia Corp. (NASDAQ:NVDA) and other AI-focused firms have capitalized on this momentum.

Furthermore, the government and central bank’s readiness to intervene in times of concern, as demonstrated during the regional banking crisis, has bolstered risk appetite.

What’s Next: While analysts hold divergent views on the market outlook, there is a consensus for a strong finish to the year. Most agree that October 2022 marked the bottom of the bear market and anticipate a continued upward trajectory.

Savita Subramanian of BofA, who initially set a 4,000 S&P 500 target for the year, recently raised it to 4,300. She bases her optimism on companies shifting focus toward efficiency, automation, and AI instead of relying on cost cuts and stock buybacks for profits.

On the other end of the spectrum is Mike Wilson of Morgan Stanley, who believes the current upside is a bear market rally and warns of an imminent major market correction.

The market’s near-term trajectory will likely be influenced by the rate trajectory, with a Fed pivot depending on inflation slowing toward the central bank’s target. Traders will closely monitor incoming economic data and the Fed’s commentary as they make their next moves.

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