Sometimes a week can make a year.
The S&P 500 Index's best week in 13 months propelled it within half a per cent of surpassing roughly a quarter of strategists' price targets for 2018.
"It's only been four days but it feels like 40," writes Christopher Harvey, head of equity strategy at Wells Fargo & Co. "Overall, it suddenly feels like the consensus is in the reflation trade and almost daily there are more and more converts to the belief in a melt-up."
Last week's gain of 2.6 per cent took the benchmark for American equities to a record 2,743, just shy of the 2,750 mark that where Morgan Stanley's Mike Wilson, Scotiabank's Vincent Delisle, and Stifel Nicolaus's Barry Bannister saw the S&P 500 Index finishing the year. It outstripped the 2,650 price target of HSBC's Ben Laidler before the year even began.
Analysts had been scrambling to bump up their 2018 price targets, with both Harvey and Jonathan Golub of Credit Suisse Group AG proffering a more bullish outlook for U.S. equities in the final 10 days of the year. But just like 2017, when the S&P 500 Index ended more than 175 points above the most optimistic price target heading into the year, the melt-up may steamroll even the sunniest of views.
Investor euphoria has pushed the S&P 500 Index, as well as most global equity gauges, to overbought levels, but the enthusiasm is grounded in firming fundamentals.
The three-month earnings estimate revision ratio for the U.S. bourse's constituents brightened to a six-year high in December thanks to the passage of a tax overhaul and a rally in crude oil prices. The top-line trends are even more encouraging, according to Savita Subramanian, head of U.S. equities and quantitative strategy at Bank of America Merrill Lynch, as even more analysts have ratcheted up their sales forecasts.
The magnitude of the positive revisions to earnings by companies on the S&P 500 understates the positive impact the tax cuts will have on corporate America, says Credit Suisse's Golub.
"Analysts have adjusted their 2018 forecasts by less than 2 per cent for recent tax changes, a fraction of the likely impact," he wrote in a note on Monday.