J.PMorgan has increased its S&P 500 forecast for the next half of the year. The firm's new outlook comes on the back of increased speculation tilting toward an end to the U.S.-China trade war and the Federal Reserve adopting a seemingly softer monetary policy. The new Fed monetary policy is predicted to result in reduced borrowing costs for firms and companies, giving markets a boost.
JPMorgan took its target for the S&P 500 to 3,200, surpassing the 3,125 target previously set by Fundstrat co-founder and renowned stock market bull Thomas Lee.
Speaking about the revised expectations, JPMorgan's chief equity strategist for the U.S., Dubravko Lakos-Bujas, said in a report cited in CNBC:
"We are raising our S&P 500 12 month price target to 3200 as our upside case for equities is increasingly in play with Fed and Trump easing on policy while investor positioning/sentiment remains low."
Relaxed Economic Fears to Boost the S&P 500
At the start of 2019, there was a widespread fear that the Fed would raise interest rates, which coupled with the escalation in the U.S.-China trade conflict could create conditions for a recession. These expectations have all but cleared up now. JPMorgan's statement serves as the latest confirmation that America's bull-run looks set to continue past 2019 after recently breaking the record for the longest consecutive period of job creation.
The firm increased its S&P 500 forecast from 3,000 to 3,200, a 6.2 percent increase from Monday's close of 3014.30. The reason for JPMorgan's stance is that they are optimistic that the second half of 2019 will see different central banks around the world become more dovish, emphasizing that at least six developed markets and 13 rising markets will relax their policies.
In addition to this, the firm is highly optimistic about a trade deal between the U.S. and China before the year ends that will erase the trade tensions between both countries. The optimism stems from the recent meeting between both presidents at the recently concluded G20 summit in Osaka, Japan. Tensions between both countries had increased when in May, President Trump followed through with his threats and slammed Chinese imports with higher tariffs.
More Bullish Than The Bulls
JPMorgan's forecast is now one of the most optimistic predictions on Wall Street, surpassing Fundstrat's Tom Lee's forecast for a 7 percent stock rally between now and year-end to 3,125. Lee predicted in May central banks will go easy on their monetary policies, saying, “The market is comfortable with this earnings recession, and the Fed has proved its message is much more market-friendly.”
— Eric⚡️ (@Skyline1224) July 12, 2019
At the time, Fundstrat advised investors to buy cheap stocks in companies with strong dividends and earning potentials while making sure to avoid stocks with low volume.
Def looks like we will see a full blown earnings recession...
— Thomas Lee (@fundstrat) July 15, 2019
That's not to say that there won't be some bumps for the S&P 500 along the way.