The higher the U.S. stocks rise, the more bullish Wall Street becomes

As corporate profits and economic growth prospects have continued to improve this year, major US stock indices are approaching historic highs, and Wall Street's expectations for a sustained rebound in the stock market are becoming increasingly optimistic.

According to media data on Monday, the median year-end target for the S&P 500 on Wall Street has been raised from 4850 points at the end of last year to 5250 points, with the highest target also raised from 5200 points at the beginning of the year to 5600 points.

Ohsung Kwon, a stock strategist at Bank of America, believes that this reinforces the expectation of a so-called "soft landing."

Although inflation data has been higher than expected so far this year, it does not indicate that price increases are accelerating again. At the same time, other data shows that the economy is slowing down but still resilient, easing concerns in the market that overheated growth could once again lead to a surge in inflation.

BMO's chief investment strategist, Brian Belski, has raised the year-end target for the S&P 500 from 5100 points to 5600 points, setting a new high expectation on Wall Street.

Given the strong performance of the stock market at the beginning of the year, there is still room for further upside. Based on an analysis of historical data, in years when the S&P 500 has risen by more than 8% in the first five months, there is a high probability of 70% that the index will rise by over 7% in the remaining time.

Corporate Earnings Boost US Stocks

Optimistic analysts on Wall Street insist that the continuous rebound in corporate profits will be the key driver pushing US stocks to new highs this year. This has already become a reality, with corporate profits growing by 6% in the first quarter of 2024, the highest growth rate in nearly two years.

The driving force behind profit growth has not undergone significant changes, with tech stocks like Nvidia, which announced better-than-expected performance last week, still being the main force driving profit growth in the S&P 500. However, analysts believe that profits in other sectors are expected to start spreading by the end of this year.

Kwon pointed out:

The first phase of the artificial intelligence cycle has emerged, reflected in the profit growth of companies like Nvidia, mainly due to tech giants such as Google, Amazon, and Microsoft making significant investments in this emerging technology.

The recent rise in sectors like utilities and energy shows that profit growth is spreading to other areas. In the past month, Nvidia contributed to 37% of the profit growth in the S&P 500 index, but in the next 12 months, this proportion is expected to decrease to 9%.

Binky Chadha, chief stock strategist at Deutsche Bank, also believes that other sectors of the S&P 500 will make a greater contribution to corporate profit growth by the end of this year. He recently raised the year-end target for the S&P 500 from 5100 points to 5500 points and noted that there is upward risk to this target.

Despite the optimistic sentiment, investors' actual positions in the stock market have not changed much in the past three months. According to Deutsche Bank's calculations, investors' positions in the stock market are far from the extreme levels seen in 2021 and 2018.

This suggests that there may still be room for the stock market to rise, as expectations for the US economy have shifted from being on the brink of recession to normal or below-trend growth. If this consensus continues to evolve in an optimistic direction, and the US economy performs better than expected again this year, reaching 6000 points on the S&P 500 index is not out of the question. **