After research firm Bernstein announced the highest US stock target price of 5500 points last month, Wall Street giant Wells Fargo broke this record again on Monday.
On Monday Eastern Time, the strategist team at Wells Fargo raised the target price of the S&P 500 index from 4625 points to 5535 points.
This means that compared to the closing price on Monday Eastern Time, they expect the US stock market to have more than 6% upward potential. Driven by expectations of interest rate cuts and the wave of artificial intelligence, the S&P 500 index has risen by a cumulative 9% so far this year.
Investors will focus more on growth rather than valuation
Last month, global research by HSBC and Bank of America predicted that the index would reach 5400 points by the end of 2024, while Oppenheimer set a target price of 5500 points, the highest target price previously touted on Wall Street. However, this Monday, the latest target price from Wells Fargo Bank once again broke this record.
The stock strategist at Wells Fargo believes that the current bull market in the US stock market is driven by the long-term growth of artificial intelligence and the concentration of holdings in constituent stocks, which has led investors to prioritize growth and discount indicators over traditional valuation indicators.
The characteristic of this transformation is that, driven by long-term optimism, investors are increasingly willing to accept higher valuation thresholds and extend investment periods.
"The bull market atmosphere, long-term growth stories of artificial intelligence, and index concentration have shifted investors' attention from traditional valuation indicators to long-term growth and discount indicators," said Wells Fargo Bank in a report
Wells Fargo Bank also emphasized that the current monetary policy has fueled risk and leverage, which may exacerbate systemic risk. However, they anticipate that systemic risk will not immediately peak and believe that aggressive valuations are reasonable until a certain threshold is reached. The threshold they mentioned includes the expansion of investment grade credit spreads, inflation adjustment or the continuous rise of 10-year US treasury bond bond yields.
Be wary of the risk of rising prices in the second half of the year
Despite shouting out ultra-high target prices, looking ahead, Wells Fargo Bank is not entirely optimistic. The bank believes that, driven by favorable political developments and easing cycles, the US stock market may experience a "melt up" in the second half of 2024.
"Rongshang" refers to the situation where investors flock to the market without changing their fundamentals, as they do not want to miss the opportunity to make money from the stock market's rise. This leads to an increasing number of bulls in the market, and the market sentiment is super optimistic. The market continues to rise, even accelerating, ultimately leading to market collapse.
The report states, "We believe there is indeed some upward space for the stock market at the current level, but we still expect volatility to soar in the second half of 2024."
Wells Fargo believes that investment strategies should balance growth opportunities, particularly considering the defensive stability provided by the communication, healthcare, and utility sectors.
Wells Fargo Bank particularly believes that considering the valuation, technology, and solid fundamentals of mid cap stocks, it provides the best risk/return plan.