Some Upside Year-End Wall: Why Strategists See Gains
Wall Street strategists see potential for stocks to rise before year-end, pointing to earnings expectations, market valuations and historical trends in midterm…
Wall Street strategists see some upside year-end wall for stocks, with earnings expectations and midterm-election-year trends supporting a possible rally even as bond yields remain near 24-year highs. The outlook comes as investors weigh the strength of AI-related demand against interest-rate concerns.
“The path of least resistance into year-end is higher,” Truist chief investment officer Keith Lerner said. The view is not without risks: forecasts have already been tempered by rising yields, and recent trading has shown a narrower market rally.
Wall Street expects S&P 500 earnings to rise 30% year over year. Major banks are set to begin what could be a strong quarterly reporting season, giving investors a fresh test of whether corporate results can support the market’s optimism.
Valuations have also eased in technology shares. The Technology sector now trades at a price-to-earnings ratio of around 21, down from roughly 35 at the same point last year, Lerner said. Worries about a slower pace of AI spending have weighed on technology valuations.
“You also have this reset in the market and valuations, and sentiment that also suggests that we could see some upside before year-end,” Lerner said.
Historical trends offer another reason strategists see room for gains. The fourth quarter has been positive for the S&P 500 about 84% of the time during midterm election years, with an average gain of about 7%.
But Lerner pointed to a notable exception. “The one outlier was 2018, and that should raise a little bit of a flag because that's when the Fed was also raising rates, or there was concern they were going to be too tight,” he said.
That comparison matters because bond yields remain elevated and rate expectations shape the market’s year-end outlook. Yardeni Research lowered its S&P 500 target for year-end to 7,900 last month, citing rising bond yields. The new target implies just over 1% upside from current levels.
Wall Street now expects the Federal Reserve to hold rates steady at its October meeting. The expectation follows a unanimous vote for a quarter-point hike in September, according to the source report.
Recent sessions have been unsettled. Stocks rebounded on Friday after a Bloomberg report said OpenAI expects to reach or exceed $70 billion in annualized revenue by the end of the year, easing concerns that the AI boom was losing momentum.
“Things are accelerating. So to me, these are buying opportunities, not the time to be skittish,” Dan Ives, Yorkville Ives partner and senior managing director, told Yahoo Finance last week. “We're in the third inning of the AI revolution,” he added.
The rally’s breadth has narrowed, however, leaving investors to judge whether gains can extend beyond a smaller group of companies. That distinction is important for portfolios: a market lifted by a limited set of AI-linked shares may not offer the same support across the broader stock market.
UBS analysts also cited growing AI demand in their recommendations, while urging investors to spread exposure across different types of technology companies. “We recommend a diversified approach to tech, favoring high-quality semiconductor and hardware beneficiaries of AI spending, megacap platforms, and defensive tech firms,” UBS chief investment officer of the Americas Ulrike Hoffmann-Burchardi said.
The next major near-term test will be the October Federal Reserve meeting, alongside the quarterly results from major banks. Strategists’ forecasts remain exposed to both earnings performance and the direction of bond yields.
Source: finance.yahoo.com
