Positive Outlook for S&P 500

Yardeni Research analysts forecast a positive trajectory for the S&P 500 index in the upcoming months, despite September’s historical challenges for stocks.

The firm predicts that the Federal Reserve will begin monetary easing with a 25 basis points cut in the federal funds rate on September 18, which will support the market. On the same date, the Federal Open Market Committee (FOMC) will release its Summary of Economic Projections, likely indicating further rate cuts ahead.

Year-to-date, the S&P 500 has surged 18.4%, reflecting investor optimism. Yardeni Research also highlights that while the market typically favors political gridlock, stocks have historically performed well, irrespective of which party is in power.

Upcoming political events on November 5 are deemed too early to have any immediate influence on market expectations.

Geopolitical issues are still a concern, particularly due to the ongoing conflict following Russia’s invasion of Ukraine since February 24, 2022. Nevertheless, lower oil prices and record stock rallies demonstrate resilience.

Domestically, the U.S. economy is steadily growing, with inflation approaching the Fed’s 2% target. Analysts have robust expectations for the S&P 500’s operating earnings per share for this year and the next two, predicting forward earnings will reach an all-time high.

Despite the S&P 500’s valuation multiple appearing slightly stretched at 21.1, Yardeni Research indicates that positive economic indicators could result in fewer rate cuts over the next year, likely affecting bonds more than stocks.

Analysts noted, “We are hard pressed to find what could possibly go wrong in September. Thus, the path of least resistance may continue to drive stock prices higher. We expect a year-end rally to 5800 on the S&P 500, which might already be underway.”

Furthermore, the firm anticipates an increase in the 10-year Treasury yield to between 4.00% and 4.25% in the coming weeks.