BMO (TSX:BMO) Capital Markets is raising its 2024 price target for the S&P 500, as they believe the robust stock market momentum is likely to persist.
In February, the investment bank’s analysts drew a line in the sand regarding the market’s outlook, setting the year-end price target for the index at 5,100. At the time, analysts believed that equities’ performance had accelerated too quickly following the significant rebound from the October 2023 low.
“Now that roughly three months have passed since that report it has become clear to us that we underestimated the strength of the market momentum, particularly considering that investor expectations and Fed policy guidance have become essentially aligned” compared to the notable disconnect that emerged at the start of the year, BMO analysts noted.
Moreover, historical performance patterns hint at continued gains given the market’s year-to-date performance. And while BMO still expects a significant pullback at some point, it is likely to occur at a higher level than previously expected, meaning the eventual rebound will also start from a higher base, its analysts explained.
“As such, we are increasing our 2024 S&P 500 price target to 5,600, which currently represents the highest forecast based on the latest Bloomberg strategist survey,” they wrote.
“We are comfortable with this because we believe the market is behaving in a similar fashion to 2021 and 2023 – years where we did not give enough credit to the strength of market momentum, something we are trying to avoid this time around.”
Analysts said they were previously cautious due to the strong market performance since the second year of the bull market began in October '23. The first-year performance was 21.6%, below the post-WWII average of 42.2%.
“Therefore, our new target of 5,600 would imply a year two return of 28.7% bringing the two-year cumulative performance of this bull market to 50.3% – which is roughly in line with the historical average,” they said.