“The Inevitable Pursuit of a New Record High in the S&P 500: Insights from JPMorgan’s Trading Desk”

  • A cadre of JPMorgan’s trading desk analysts confidently asserts that an imminent new record high for the S&P 500 is practically inevitable.
  • The analysts stated that the substantial amount of sidelined funds renders the prospect of a technical correction highly improbable.
  • With robust economic growth and a steady improvement in earnings, the index is poised to set course towards an all-time high.

The S&P 500 has been on an impressive tear throughout the first half of 2023, and it seems increasingly likely that we are on the cusp of achieving a new record high. In a memo addressed to our esteemed clients on Tuesday, our esteemed analysts from the trading desk, spearheaded by none other than Andrew Tyler, the illustrious head of US market intelligence, have asserted that the momentum in stocks appears set to continue its ascent. The driving forces behind this bullish sentiment are the positive updates on economic growth and inflation.

As we step into the month of August, there is a prevailing sense that the market is converging towards a consensus of optimism, with expectations aligning for a potential pullback before resuming the remarkable upward trajectory.

On Tuesday’s close, the S&P 500 wrapped up at 4,576.73, a mere 5% below its all-time high closing mark of 4,796.56 achieved back in January 2022.

Despite a recent bout of capitulation in the equity market, stemming from concerns that the Federal Reserve might intervene and disrupt the economy, the overall sentiment remains bullish, according to the experts.

“It appears that ample funds are awaiting an opportune moment to enter US stocks, along with other regions,” articulated the trading group. “This observation is an additional factor supporting the improbability of a technical correction or worse, given that macro data tends to change less abruptly than such a scenario suggests.”

In essence, the prognosis stands in favor of further stock market gains, propelled by additional data reflecting economic growth and improved earnings.

In a noteworthy development, inflation saw a moderation in July, settling at an annual rate of 3%. While this still exceeds the central bank’s 2% target, it represents a substantial drop from last year’s peak of 9.1%, compelling investors to flock to the stock market.

To propel stocks to even loftier heights, a confluence of factors must come into play, as pointed out by the analysts. Crucial among these are improved GDP growth and earnings expansion, all while keeping the Federal Reserve from further tightening its monetary policies. The analysts argue that when earnings manage to exceed expectations in a high-rate environment, it lays the groundwork for elevated valuations, thereby creating the potential for the S&P 500 to surge well beyond its previous record highs.

The analysts confidently assert that surpassing the all-time high is an inevitable event, merely contingent on the right timing. However, they also suggest that reaching the 5,000 milestone should not be considered surprising, particularly if this upswing signifies a reacceleration of the macroeconomic data and economic cycle, rather than a mere transient rebound leading to choppy data trending downwards.

While historical data indicates that August and September are typically weaker months for market performance, the analysts believe that any near-term pullback would be curtailed, with stocks subsequently embarking on an upward march.

In the broader economic landscape, indications of a cooling economy could serve to prevent the Federal Reserve from raising interest rates beyond the current range of 5.25%-5.5%. This stance bolsters the outlook for the highly coveted soft-landing scenario, a prospect that may have seemed improbable merely a few months ago.