Stock market outlook: Top Wall Street bear reverses course and now expects the S&P 500 to hit the 6,000 mark

Julian Emanuel, the firm’s chief equity and quantitative strategist, raised his year-end forecast for the S&P 500 index to six,000, the very best amongst major equity strategists tracked by Bloomberg – and about 10 percent above the index’s closing level on Friday. That’s a reversal from one in all Wall Street’s most distinguished bears, who had previously expected a year-end reading of 4,750.

Optimism about a sturdy economy, rising corporate profits and the tip of the Federal Reserve’s tightening cycle has pushed the S&P 500 up 14% this yr, and Emanuel says easing inflation and enthusiasm for artificial intelligence will drive stocks even higher. Emanuel’s latest estimate tops the 5,600 mark. David Kostin of Goldman Sachs Group Inc., Jonathan Golub of UBS Group AG and Brian Belski of BMO Capital Markets expect that.

“The pandemic changed everything,” Emanuel wrote in a note to clients on Sunday. “Record economic stimulus, high cash balances and low debt support the consumer. Then came AI. Today, the potential of GenAI is having an impact in every profession and in every sector. Against a backdrop of declining inflation, a Fed intent on cutting interest rates and growth, the Goldilocks effect is supported.”

Emanuel also raised his estimate for the index’s earnings per share in 2024 and 2025 to $238 and $251, respectively. The latest figures represent earnings growth of 8 and 5 percent, respectively, he said.

The S&P 500’s jump to six,000 points by the tip of December on earnings per share of $238 will push the index’s price-earnings ratio as much as 25, Emanuel said. While that is certainly too high by historical standards, it continues to be below the extent of 28 in the course of the dot-com peak, Emanuel said. He thinks it is feasible that the 500-point index will reach 7,000 points by the tip of 2025, he added.

While enthusiasm for artificial intelligence has driven valuations “into the top decile since 1960,” the S&P 500’s price-earnings ratios could remain elevated “over longer periods of time,” Emanuel said.

The move comes after Goldman’s Kostin raised the firm’s year-end goal for the S&P 500 for the third time on Friday, reflecting Wall Street’s optimistic outlook for earnings growth and the U.S. economy. Among major Wall Street banks, JPMorgan Chase & Co. has the bottom year-end goal for the S&P 500 at 4,200 points, down greater than 20 percent from Friday’s close.