Yardeni Research analysts see a positive trajectory for the coming months despite the historical tendency of September being a challenging month for stocks.
The research firm anticipates that the expected monetary easing by the Federal Reserve, which begins with a 25 basis point cut in the federal funds rate on September 18, will support the market.
Additionally, the Federal Open Market Committee (FOMC) will release its Summary of Economic Projections on the same date, which is widely anticipated to signal further rate cuts in the coming months.
The S&P 500 has already seen a significant rise so far this year, up 18.4%, which may reflect investor optimism that good news is on the way. Yardeni Research also noted that while the market tends to prefer political gridlock, stocks have historically performed well regardless of the ruling party.
The upcoming political developments on November 5 come too early to have an impact on current market expectations, analysts say.
Geopolitical risks remain a concern, especially with the current situation since the Russian invasion of Ukraine on February 24, 2022. However, subdued oil prices and record stock gains indicate resilience in the face of these risks.
Domestically, the U.S. economy is growing steadily and inflation is approaching the Federal Reserve's 2% target. Analysts have strong expectations for S&P 500 operating earnings per share for the current year and the next two years, and future S&P 500 earnings will hit an all-time high.
Despite a valuation multiple for the S&P 500 that appears slightly overextended at 21.1, Yardeni Research suggests that better-than-expected economic indicators could lead to fewer rate cuts over the next 12 months, potentially impacting the bond market more than the stock market.
“We find it difficult to determine what could go wrong in September. Therefore, perhaps the path of least resistance will continue to drive equity prices higher. We continue to expect a year-end rally to 5,800 in the S&P 500, which may already be underway,” the analysts wrote in a research note on Monday.
The firm also expects an increase of between 4.00% and 4.25% in the coming weeks.
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