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Wednesday, August 25, 2021
S&P 500 targets are rising left and right
The calendar today reads August 25, but it’s starting to feel like the year is over.
Starbucks (SBUX) unleashed its Pumpkin Spice Latte on the masses Monday; the chain’s holiday-themed cups are now right around the corner. And Wall Street strategists have been issuing revised outlooks for how high the stock market could be headed in the months ahead.
Within the last month, no fewer than four Wall Street shops have either initiated or revised higher S&P 500 price targets for this year and next. And while the annual exercise of forecasting the year ahead is typically reserved for November and December, it seems that in this market the Street just can’t wait.
On Tuesday, Wells Fargo’s Chris Harvey raised his year-end S&P 500 price target to 4,825 from 3,850, as reported by Bloomberg’s Lu Wang. This move follows a weekend note by David Lefkowitz, head of equities for the Americas at UBS Wealth Management, who raised his year-end price target for the S&P 500 to 4,600 from 4,500.
The S&P 500 closed at a record of 4,486 on Tuesday.
Lefkowitz also raised his June 2022 price target to 4,800 from 4,650, with the real headline coming from his year-end 2022 S&P 500 price target — 5,000.
“Yes, the rally off the COVID-19 bottom in March 2020 has been extraordinary, but we think there are further gains ahead,” Lefkowitz writes. “Solid economic and corporate profit growth, in conjunction with a still-accommodative Fed, means that the environment for stocks remains favorable. As a result of our higher EPS estimates, we raise our targets for the S&P 500 for December 2021 by 100 points to 4,600 and June 2022 by 150 points to 4,800. We initiate our December 2022 target of 5,000, representing about 13% price appreciation from current levels.”
With this 2022 outlook, Lefkowitz joins Credit Suisse’s Jonathan Golub who earlier this month put a price target of 5,000 on the S&P 500 for the end of 2022. The equity strategy team at Goldman Sachs also garnered headlines earlier this month in raising their year-end price target to 4,700 from 4,300 while putting a year-end 2022 price target on the benchmark index of 4,900.
Like Golub, Lefkowitz sees earnings growth — not multiple expansion — as the driving force behind the market’s rally in the year ahead.
“Our price targets assume a forward P/E multiple of about 20x, slightly below current levels of 21x,” Lefkowitz adds. “We expect valuations to remain above historical averages mostly due to the very low interest rate environment. Said another way, stocks continue to look appealing relative to bonds.”
What to watch today
7:00 a.m. ET: MBA Mortgage Applications, week ended August 20 (-3.9% during prior week)
8:30 a.m. ET: Durable goods orders, July preliminary (-0.3% expected, 0.9% in June)
8:30 a.m. ET: Non-defense capital goods orders excluding aircraft, July preliminary (0.5% expected, 0.7% in June)
8:30 a.m. ET: Non-defense capital goods shipments excluding aircraft, July preliminary (0.7% expected, 0.6% in June)
4:05 p.m. ET: Salesforce (CRM) is expected to report adjusted earnings of 92 cents per share on revenue of $6.24 billion
4:05 p.m. ET: Autodesk (ADSK) is expected to report adjusted earnings of $1.13 per share on revenue of $1.06 billion
4:05 p.m. ET: Ulta Beauty (ULTA) is expected to report adjusted earnings of $2.52 per share on revenue of $1.77 billion
Technology and finance CEOs from Apple’s Tim Cook to Alphabet’s Sundar Pichai to JPMorgan’s Jamie Dimon will be in Washington for a series of meetings at the White House on cybersecurity. A senior Biden official promises “a set of announcements” from the assembled CEOs over the course of the day.
Congress is back in recess after the U.S. House of Representatives passed a $3.5 trillion budget plan Monday afternoon. House Speaker Nancy Pelosi will discuss the vote at 9:00 a.m ET during her weekly press conference.
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