A stellar U.S. corporate earnings season is expected to lift the S&P 500 by another 8 per cent through the end of the year, analysts at Wells Fargo said on Tuesday, implying a near 28-per-cent jump for the benchmark equities index in 2021.
In raising his price target for the index to 4,825 points, Wells Fargo analyst Christopher Harvey said S&P 500 firms had so far seen their earnings-per-share forecasts raised by 21 per cent “and the trend shows no sign of abating.”
With the second-quarter U.S. reporting season nearly completed, Refinitiv data shows that about 87 per cent of S&P 500 companies have beaten analysts’ profit expectations, the highest on record.
The stunning rebound in corporate profits and a loose monetary policy by the Federal Reserve have helped Wall Street’s main indexes hit new highs following the coronavirus-driven crash last year.
The S&P 500 has more than doubled since its pandemic lows in March, 2020, although gains have recently been capped by fears the Fed could begin to taper its massive stimulus program sooner than expected. The index is up about 19 per cent so far this year.
“If and when the Fed does finally utter the T-word [taper], we would expect the market to take a step back,” Mr. Harvey said in the note to clients.
All eyes are on the Fed’s annual Jackson Hole symposium this week.
UBS analysts also raised their S&P 500 targets for end-2021 to 4,600 from 4,500 and introduced an end-2022 target of 5,000 in a note published on Sunday.
Over the past 31 years, there have been nine instances where the S&P 500 rallied 10 per cent in the first eight months of the year followed by an average 8.4-per-cent climb over the final four months, Wells Fargo analysts said.
August and September have been the two weakest months of the year for equities over the past decade, they said.
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