Investment bank RBC (TSX:RY) Capital Markets raised its year-end 2024 target for the S&P 500 from 5,300 to 5,700, a move it characterized as “a nervous raise.”
RBC strategists now predict a 19.5% gain from the December 2023 close and a 4.4% rise from the end of June for the benchmark index.
RBC said the models it uses to derive year-end price targets indicated a range of outcomes, with the S&P 500 potentially ending the year as low as 5,200, based on valuation models, or exceeding 5,800, supported by cross-asset and political models.
“We continue to view our price target as more of a compass (rough guide) than a GPS (precision tool),” strategists said in a note.
“The story we see in our data for 2024 is that the stock market has gotten a bit ahead of itself from a valuation perspective, as well as on some of our sentiment work, but that some our tools do still point to the potential for the S&P 500 to move a little bit higher between now and year-end,” they added.
Strategists believe that the risks of a near-term pullback are now higher, however, they expect any such move to be temporary and limited to a range of 5-10%.
“We’ve described ourselves as a “tired bull” and “neutral” recently,” strategists continued. “Today, we would alter that slightly and characterize ourselves as a “nervous and jumpy bull”.”
RBC also acknowledges significant uncertainty in the outlook for the second half of 2024 and into 2025, particularly concerning the US consumer and the upcoming election. The investment bank notes that the US economy seems to be entering a soft patch and that stock market volatility often increases during Presidential election years.
Despite these challenges, they believe any pullback will be a temporary setback on the path to recovery from near-recession conditions in 2022, with the market expected to get back on track soon.
“But if we are wrong and the economic forecast takes a turn for the worse in the months ahead or seems poised to in 2025, there is downside risk to our year-end 2024 call,” RBC added.
For 2025, strategists said that while the outlook for 2025 remains too uncertain to publish a definitive price target, preliminary analysis using their five models suggests a median outcome of 6,159 for the S&P 500.
The range of outcomes spans from 5,900 to nearly 6,400, with three models clustering around the 6,100-6,200 range.
“The signal we see in our modeling today is that stock prices have room to rise further in 2025 from a sentiment, valuation, cross-asset, and political perspective,” strategists wrote.