Piper Sandler analysts have raised their year-end price target for the S&P 500 to 4,825 from 4,625, suggesting a potential upside of approximately 5.3% from the current level of the large-cap index.
Improving Stock-Market Breadth Signals Continued Growth
According to Piper Sandler & Co., a revitalized stock-market breadth, characterized by more advancing stocks than declining stocks, indicates a stronger and more sustainable upward trend. Craig Johnson, the managing director and chief market technician, and Scott K. Smith, the technical equity research analyst at Piper Sandler, expect this trend to drive the S&P 500 higher by the end of 2023.
Diverse Stocks Inspired by Market Growth
Commenting on the market’s leadership, Johnson and Smith stated that this study defies the notion that the market’s success is limited to just seven “magnificent” mega-cap stocks.
Among the eleven sectors in the S&P 500, industrials hold the most number of constituents that reached new record highs year-to-date. This is followed by consumer discretionary, healthcare, and information technology.
Megacap Technology Companies Reignite the Market
See: The ‘narrow breadth’ chorus has fallen silent. What broadening participation in stock-market rally means for investors.
S&P 500 Continues Strong Rally in 2021
The S&P 500 has demonstrated impressive growth this year, with a year-to-date increase of 19.4%. This performance positions it as the best-performing index in the first seven months of a year since 1997, based on data from Dow Jones Market Data. As of Monday afternoon, the S&P 500 was nearly flat at 4,583 points.
According to industry experts Johnson and Smith, the current bull market’s success is not solely attributed to a handful of mega-cap companies. Large-cap stocks across various sectors such as industrials, discretionary, healthcare, technology, and financials have contributed to the market’s upward trajectory by achieving record highs.
Additionally, Johnson and Smith noted that the earnings season for the second quarter has been more positive than anticipated. As of July 28, 51% of S&P 500 companies have reported their actual results. Among them, 80% have exceeded earnings-per-share expectations, while 64% have surpassed revenue expectations, according to data from FactSet.
While historical data suggests a likelihood of short-term pullbacks following multiple consecutive positive months for the S&P 500, Johnson and Smith remain optimistic about its intermediate-to-long term prospects. Since 1928, there have been 38 instances of the S&P 500 experiencing five or more straight months of positive returns. In the subsequent three months, the index has averaged a slight loss of 0.32% with a 50% positivity rate, according to Piper Sandler Technical Research. However, it has recorded positive returns after six and 12 months, with average gains of 1.23% and 8.97%, respectively.
Looking ahead, Johnson and Smith maintain their bullish outlook for the intermediate term of this ongoing bull market that began in October ’22. They also anticipate short-term fluctuations and sector rotations over the upcoming weeks of the summer season.
