Wall Street strategists change their targets for the S&P 500 all the time – lowering them when times are bad and raising them when times are good. Now, with the S&P 500 close to a new record high, they are in the midst of raising their targets.
But what's interesting is that some of the more bearish strategists are leading the charge.
David Kostin, chief U.S. equity strategist at Goldman Sachs, raised his year-end target to 1625 from 1575, for a 3.2 per cent bump. More impressive, Adam Parker at Morgan Stanley increased his target to 1600 from 1434 – for a 12 per cent increase.
Mr. Kostin and Mr. Parker's year-end targets had been among the lowest on Wall Street in 2012, with both strategists predicting that the benchmark index would end the year lower than it had begun. However, the index rose 13 per cent last year.
Therefore, it is tempting to see their revisions as another step toward capitulation, as bearish strategists and investors jettison their skepticism of the bull market and dive headlong into stocks.
In January, much was made of a similar move among retail investors, when mutual fund data showed that investors had begun to move their money into equity funds in a big way, ending a long period of net outflows from equity funds. Many observers believed the move signalled that investors had at last embraced the four-year-old bull market.
Others, of course, are wondering about the contrarian indicator here: If everyone is turning bullish, is there anyone left to drive the stock market higher?
In the case of Mr. Kostin of Goldman Sachs, he sees better underlying conditions. From Bloomberg News: "The 2013 U.S. equity market story is becoming one of improving business activity accompanied by increased CEO confidence," he said. Still, he raised his estimate for earnings among companies in the S&P 500 by a mere $1 (U.S.), to $108 a share – even as the U.S. economy sees stronger growth in the quarters ahead.
Morgan Stanley's Mr. Parker made a bigger revision on his earnings estimate. He believes S&P 500 earnings this year will rise to $103.20 a share, up from an earlier estimate of $98.71. From Bloomberg News: "We see improving fundamentals in the second half of the year and into next," he said.
However, it isn't just the bears that are having second thoughts here. Bullish strategists are also raising their targets. For example, David Bianco of Deutsche Bank raised his target to 1625 from 1600. Andrew Garthwaite of Credit Suisse raised his target to 1640 from 1550. And Sean Darby of Jefferies raised his target to 1673.
David Berman