Yahoo Finance Is S&P 500 Headed Toward the 6,000 Mark? 5 Stocks to Buy
U.S. stocks have been hovering near record highs, reflecting continued bullishness in 2024. The S&P 500 notched its 30th record close this year, buoyed by the tech rally, followed by consumer discretionary stocks. The Nasdaq Composite rose 1.1% on Jun 17, following its fifth consecutive record close.
Tech Rally Boosts Forecasts
Wall Street analysts have revised their year-end targets for the S&P 500 upward, fueled by a solid tech-driven rally. Evercore ISI increased its target to 6,000, while Goldman Sachs raised it to 5,600, as quoted on Yahoo Finance. Last week, the S&P 500 surpassed the 5,400-mark for the first time.
While most analysts believe that the S&P 500 has further room for growth, investors can play top-ranked stocks like Royal Caribbean Cruises RCL, Alphabet GOOGL, The Goldman Sachs Group GS, Hasbro HAS and Zebra Technologies ZBRA.
Election Year Favorable for S&P 500?
The presidential election years have a long track record of success. In the past 70 years of the S&P 500, the election year has delivered the second-best performance among the four in the presidential tenure. The average return on election year is 7.4% with a probability of 83%, while the best returns (11% on average) have come in the pre-election year, with a probability of 88% (read: What Does the Year-End Election Hold for ETFs?).
High Valuations Not a Concern?
Despite concerns over high valuations, with the S&P 500 trading above 20 times forward earnings, analysts suggest that valuations can remain elevated for extended periods. Julian Emanuel of Evercore ISI noted historical precedents where markets remained at similar levels for hundreds of days.
During the Covid-19 reopening trade in 2021, the S&P 500 traded at similar valuation levels for 614 days. During the dot-com boom, the S&P 500 lasted at those levels for 737 days, per Emanuel, as quoted on Yahoo. This indicates that high valuations do not necessarily indicate imminent downturns.
At Least One Rate Cut Likely to Be in the Cards
Federal Reserve Bank officials hinted at rate cuts later in the year, citing improving economic data. Philadelphia Fed President Patrick Harker showed willingness to a rate cut if economic indicators continue to strengthen, while Minneapolis Fed President Neel Kashkari suggested a December timeline.
Traders now see a nearly 56.7% chance of a September rate reduction, according to the CME's FedWatch tool, compared with 45.1% one week ago. However, the rate cut by December is almost certain. There is only a 6.3% chance of rates remaining in the current range, down from the 12.9% recorded last week. There is a 43.6% probability of rates diving by 50 bps in December, up from 35.6% recorded a week ago.
Earnings Growth Driving Market
Entering 2024, bullish strategists emphasized the importance of a corporate earnings rebound for the market rally, which materialized with 6% growth in the first quarter — the highest in nearly two years. Tech earnings have driven most of this growth. However, strategists believe that earnings growth is being seen in other sectors like Utilities and Energy.
More Gains Ahead?
Although the S&P 500 entered the "expensive" territory in late January, it has gained only 15% so far this year, well below more than 40% returns seen when valuations were stretched during the post-pandemic rally and the 63% return seen during the dot-com bubble. With a resilient economy, chances of a Fed rate cut and the artificial intelligence-led tech rally, the road ahead for the S&P 500 doesn’t look bumpy at all.
Stocks to Consider
Against this backdrop, investors can tap the stocks mentioned below that have a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Royal Caribbean Cruises: This cruise company owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. It also has a 50% investment in a joint venture with TUI AG, which operates the brand TUI Cruises.
Royal Caribbean has an earnings growth estimate of 63.81% for the current year. RCL is up 14.68% this year and still has a modest forward P/E of 13.39X.
Alphabet: The company has evolved from being primarily a search engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others.
Alphabet has an earnings growth estimate of 31.11% for the current year. GOOGL is up 26.6% this year and still has a modest forward P/E of 23.25X.
The Goldman Sachs Group: It is a leading global financial holding company providing IB, securities, investment management and consumer banking services to a diversified client base.
Goldman has an earnings growth estimate of 59.91% for the current year. GS is up 15.73% this year and still has a modest forward P/E of 12.21X.
Hasbro: The company is engaged in the design, manufacture and marketing of games and toys. Founded in 1923, Hasbro offers traditional, high-tech and digital toys, games and licensed products under various well-known brands.
Hasbro has an earnings growth estimate of 45.67% for the current year. HAS is up 20.45% this year and still has a modest forward P/E of 16.82X.
Zebra Technologies: The companyis a leading provider of enterprise asset intelligence solutions in the automatic identification and data capture solutions industry throughout the world.
Zebra Technologies has an earnings growth estimate of 23.28% for the current year. ZBRA is up 10.26% this year and still has a modest forward P/E of 24.89X.
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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Hasbro, Inc. (HAS) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Zebra Technologies Corporation (ZBRA) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
