The strong rise in the US stock market is forcing one of Wall Street's biggest bears to shift towards a more positive tone.
Since October 2022, JPMorgan's strategists have been bearish on US stocks. But according to a report released on Tuesday by Dubravko Lakos Bujas, the bank's chief global stock strategist, this situation seems to be changing.
Although Lacos Bujas did not update JPMorgan's year-end target price of 4200 points for the S&P 500 index (which means the index will fall significantly by 27% from current levels), he does advise investors not to be so bearish on the market.
&Amp; quot; We are adjusting our views on long defensive stocks and short cyclical stocks& amp;quot; Lacos Bujas said.
The driving factors behind the emotional shift in Lacos Bugas include the Federal Reserve's interest rate cuts and China's introduction of new stimulus measures.
The policy support from the world's largest economies (China and the United States), coupled with unexpectedly resilient economic growth in the United States, tight labor markets, persistent government deficit spending, and historic highs in the stock, credit, and housing markets, "said Lacos Bujas.
The bank also pointed out that American consumers are in good health, and their wealth has increased by $50 trillion since the COVID-19 epidemic.
According to data from the Federal Reserve, American consumers have approximately $185 trillion in assets, mainly composed of stocks, bonds, homes, and cash, while debt is only $21 trillion. This is a healthy balance sheet.
The prospect of corporate profit growth has also encouraged Lacos Bugas, who predicts that the company's profit growth will accelerate from 3% in the past two years to 12% in the next two years.
American companies are increasingly focusing on using pre tax income for investment expenses rather than returning after tax profits to shareholders through buybacks, which also helps stimulate the economy, "explained Lacos Bujas.
This is partly driven by the AI boom, and it is expected that large tech companies will accelerate their R&D and capital expenditure investments, exceeding $500 billion annually.
Lacos Bujas pointed out that "these driving factors are helping to offset the weakness of macroeconomic imbalances".
Although it is too early to assert that this is a turning point, it does indicate that a recession is unlikely to occur in the short term, especially with unexpectedly strong job growth and a decline in unemployment rate breaking the trend of slowing down the job market, "he said.
But Lacos Bujaz didn't fully appreciate the US stock market. The strategist warned that the November presidential election could bring volatility to the market, depending on the election results, and a decrease in interest rates could have a negative impact on corporate profits, especially in the financial sector.
On Wednesday, the three major indexes of the US stock market collectively closed higher, with the S&P 500 index and the Dow Jones Industrial Average hitting new closing record highs. Previously, the Federal Reserve released the latest meeting minutes. The market is waiting for the release of September inflation data and the start of the earnings season in the United States.
As of Wednesday's close, the S&P 500 index rose 0.71% to 5792.04 points. Statistics show that this is already the 44th time this year that the index has reached a historic high.
With the Federal Reserve's interest rate cut cycle increasing the possibility of a soft landing for the US economy, Wall Street's optimism towards the US stock market is growing. Previously, Goldman Sachs strategists raised the year-end target price of the S&P 500 index for the third time this year. Now, it is expected that the S&P 500 index will close at 6000 points by the end of this year, which is the second highest target price given by Wall Street strategists.