A dotcom-like recession could push S&P 500 to 3,500 - Jefferies
The recent surge in AI-related excitement, coupled with Q2 results exceeding expectations and a growing likelihood of a soft landing, has propelled the S&P 500 index to a significant 18% increase this year.
Still, Jefferies analysts noted that the market's growth remains concentrated, with the top 5 contributing stocks experiencing a staggering 61% surge, while the rest of the S&P 500 constituents contributing with a more modest 10% uptick.
“The percentage of stocks outperforming the index stands at only 28%, close to the ratio during the dotcom bubble,” analysts wrote in a client note.
Despite the ongoing support for mega-cap tech from earnings, the current extreme market positioning calls for investors to diversify and expand their investment exposure.
Jefferies’ new 2024 forecast for the S&P 500 EPS of $230, based on the year-end multiple of 19.6, yields the updated price target of 4,500 (up from the prior 4,050).
“Our bull case of 4850 (previously 4650) assumes FY24 EPS witness almost no cuts and PE of c.20x,” analysts added.
On the other hand, Jefferies reiterated its 3,500 bear case price target for the S&P 500. This scenario assumes “a dotcom like recession with 2024F EPS of 200 but PE holds up at 17.5x as Fed turns dovish in case of a recession.”
S&P 500 closed at 4,489.72 on Monday.
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