The market has wobbled. Why one firm just increased its S&P 500 target

By Jamie Chisholm

Critical information for the U.S. trading day

Thursday's emailed Need to Know newsletter contained an error. The Nasdaq Composite's decline on Wednesday was the sharpest since mid-Dec. 2022.

Good morning, especially if you have successfully managed to boot up your personal computer, because many around the globe have not. More on that later.

It may have felt worse than this, but the S&P 500 is only 2% away from a record high, and the Nasdaq Composite is just 4% from a new perch.

Taking a glass is half-full approach is the UBS chief investment office, which now sees the S&P 500 getting to 5,900 by the end of the year, and to 6,200 by the middle of 2025. Their previous targets were 5,500 in December and 5,600 in June 2025.

They say the backdrop for U.S. equities is favorable, due to solid earnings growth, disinflation, the Fed pivoting to rate cuts and surging artificial intelligence investment.

"While economic growth readings have cooled, we believe growth remains on solid footing. Healthy labor market dynamics should continue to support further gains in consumer spending," said strategists led by David Lefkowitz.

Like many, the UBS team expects rate cuts by the Fed to begin in September, and they say second-quarter earnings season has gotten off to a good start, though the mega-cap tech companies have yet to report. "We think trends in this segment will remain favorable with strong demand for AI infrastructure as tech companies jockey for leadership positions in the emerging AI ecosystem, and companies across the economy look to deploy AI tools into their business processes," they say.

That in turn led UBS to keep its S&P 500 earnings per share target to $250 but lift next year's to $270, from $265.

What about lofty valuations? "They are reasonable in light of the macro environment," the UBS team replies. "Historically, when the Fed is cutting in the context of a soft landing, equities tend to perform well in 12 months before and after the first Fed rate cut."

Their upside scenario is the S&P surging all the way to 6,500, this year, if the Fed cuts into an investment and innovation boom. Their downward scenario is the S&P sliding to 4,800, if inflation stays sticky, higher rates weigh on growth, and/or geopolitical tensions escalate.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are inching up as benchmark Treasury yields BX:TMUBMUSD10Y are mixed. The dollar index DXY is higher, while oil prices (CL.1) slipped, and gold (GC00) is trading around $2,417 an ounce.

   Key asset performance                                                Last       5d      1m     YTD     1y 
   S&P 500                                                              5544.59    -0.72%  1.30%  16.24%  22.27% 
   Nasdaq Composite                                                     17,871.22  -2.25%  0.84%  19.05%  27.08% 
   10-year Treasury                                                     4.205      0.00    -0.01  0.08    0.09 
   Gold                                                                 2463.1     1.95%   5.50%  18.89%  25.42% 
   Oil                                                                  83.1       1.11%   3.11%  16.50%  8.16% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor's Business Daily.

The buzz

CrowdStrike (CRWD) shares are tumbling in premarket trade, as the company is being blamed for an outage hitting Microsoft (MSFT) Windows computers globally. CrowdStrike says it's identified the problem, which it says was caused by an update and not a security issue.

There are no notable U.S. economic reports due on Friday, but there is some Fedspeak, with New York Fed President Williams making comments at 10:40 a.m. Eastern and Atlanta Fed President Raphael Bostic talking at 1 p.m.

Companies reporting earnings before the opening bell include American Express (AXP), SLB (SLB), Halliburton (HAL), Travelers (TRV) and Huntington Bancshares (HBAN).

Netflix shares (NFLX) are down less than 1% as traders absorb news that the streaming company delivered better-than-expected second-quarter earnings.

Donald Trump promised tax cuts and an end to inflation as the Republican presidential nominee spoke Thursday night to close out his party's convention in Milwaukee.

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Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   GME     GameStop 
   CRWD    CrowdStrike Holdings 
   TSLA    Tesla 
   MSFT    Microsoft 
   TSM     Taiwan Semiconductor Manufacturing 
   INFY    Infosys 
   NFLX    Netflix 
   AAPL    Apple 
   AMC     AMC Entertainment 

The chart

"Retail purchases of financial assets rebounded following the June NFP print, gathered speed after the softer CPI number last Thursday, and then broke out of the (subdued) Q2 range following Trump's failed assassination in what appears to be a response to improving growth prospects driven by Fed easing hopes and Trump's pro-growth agenda," says Vanda Research.

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-Jamie Chisholm

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07-19-24 0622ET

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