MW The next leg of gains for the S&P 500 is coming. Here's how investors need to prepare, says these strategists.
By Barbara Kollmeyer
Critical information for the U.S. trading day
After a few days of glory for Nvidia sellers, the AI king has come roaring back as dip buyers stepped in, lifting the S&P 500 in the process. Stocks are starting out a bit slower for Wednesday.
As the quarter winds down, many investors are likely pondering what the next few months will bring. Our call of the day comes from a team at Societe Generale, led by strategists Manish Kabra and Charles de Boissezon, who say "the next leg higher" for the S&P 500 SPX won't come until the first quarter of 2025, alongside a Fed rate-cutting cycle.
The strategists are sticking to their "already bullish" end-year S&P 500 target of 5,500. That's as they point out the index is at a "critical juncture," given narrow breadth, with just a few stocks leading the market higher.
They give two contrasting outlooks: The first is a bear-market phenomenon often seen in recessions. If this were the case - not unless the Fed starts hiking again they say - the S&P 500 would be at risk of dropping to 4,000.
The second would be a concentrated group of highflying stocks pushing the index into bubble ground - they say the index could hit 6,666 in this case, based on a past big bubble.
Kabra and his colleague argue that it takes time for a peak to form in equities, even if some major tech stocks are already pricing in bubble valuation levels. Nvidia $(NVDA)$, for example, is trading at 25 times price to sales, slightly above Cisco or Microsoft at the TMT bubble's peak, they note.
Still, given consensus is forecasting an average rise of 17% per annum in earnings per share for the "Magnificent Seven" over the next three years, they don't think the Nasdaq-100 is as extended it was in 1999-2000 - yet.
"Some measures indicate that we are not at the peak of the valuation bubble yet, and our simple TMT bubble math puts the S&P 500 at 6,666 should a bubble form," the strategists said.
So what's the game plan for Kabra and de Boissezon? They remain a fan of tech and are keeping an overweight on the sector. "However, as the profit cycle outside the Nasdaq-100 companies should move from -10% in 2023 to +8% by end 2024, we have identified cyclical opportunities outside tech too," they say.
"So, instead of taking cyclical risk within tech, where high-risk stocks have already performed well, we suggest opting for financials and industrials," they said.
Opinion: Nvidia's rebound from the correction only makes the stock more dangerous to buy
The markets
Tech gains are sputtering with stocks SPX COMP DJIA mostly lower as trading kicks off and Treasury yields BX:TMUBMUSD10YBX:TMUBMUSD02Y climb. Gold (GC00) is under pressure as the dollarDXY jumps - notably against the Japanese yen $(USDJPY.FOREX)$ that's sitting at a fresh 34-year low above 160 against the dollar as traders brush off intervention possibilities.
Key asset performance Last 5d 1m YTD 1y S&P 500 5469.3 -0.32% 3.08% 14.66% 24.92% Nasdaq Composite 17,717.65 -0.81% 4.10% 18.03% 30.70% 10-year Treasury 4.274 4.70 -34.50 39.31 56.23 Gold 2324.9 -0.82% -0.51% 12.22% 21.31% Oil 81.24 0.57% 2.47% 13.89% 17.48% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Rivian stock $(RIVN)$ is up 38% on news Volkswagen (XE:VOW3) (XE:VOW) will invest $1 billion in the EV maker. The latter's investors seem less thrilled.
FedEx $(FDX)$ is up 13% after the package shipper forecast stronger demand and says freight business is under review.
Whirlpool stock $(WHR)$ is surging on a report that German engineering group Robert Bosch could bid for the appliance giant.
Chipotle $(CMG)$ is climbing after a 50-for-one stock split, its first since debuting two decades ago on the New York Stock Exchange.
Southwest Airlines $(LUV)$ stock is off 8% after a cut to revenue guidance.
General Mills $(GIS)$ is falling after a revenue miss and soft guidance, while and Paychex $(PAYX)$ is wobbling despite solid earnings and sales. Micron Technology $(MU)$ will report after the close.
On a quiet data day, new-home sales are due at 10 a.m.
The espionage trial in Russia of jailed WSJ reporter Evan Gershkovich begins on Thursday.
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Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
Ticker Security name NVDA Nvidia GME GameStop TSLA Tesla RIVN Rivian AMC AMC Entertainment TSM Taiwan Semiconductor Manufacturing AAPL Apple MU Micron Technology AMD Advanced Micro Devices NIO Nio
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-Barbara Kollmeyer
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(END) Dow Jones Newswires
June 26, 2024 09:46 ET (13:46 GMT)
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