Wall Street Strategists Chase S&P 500 Like Few Times in History

(Bloomberg) — Wall Street strategists, who have been rapidly adjusting their stock predictions following the market’s rebound from its early-year decline, are consistently underestimating the extent of this rally.

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The record-setting rise in the S&P 500 Index has surpassed the average year-end forecast among Bloomberg-tracked analysts by nearly 3%. Currently, the predicted average stands at 6,486 points. This scenario has only occurred in 2024 and 1999, indicating a significant deviation from last year’s trends.

The disconnect reflects the challenging conditions faced by analysts as equity prices have risen, defying concerns about President Trump’s trade policies and indications of a slowing US economy.

These worries have been overshadowed by unexpectedly robust profit growth, the surge in popularity among major technology firms leveraging advancements in artificial intelligence, and most recently, the anticipation of potential interest rate cuts by the Federal Reserve.

Consequently, strategists at leading firms like Goldman Sachs Group Inc. and Deutsche Bank AG are finding it difficult to keep pace, as they have amended their forecasts multiple times since the S&P 500 experienced a remarkable recovery following the tariff-induced market decline earlier in the year.

Wall Street veteran Ed Yardeni of Yardeni Research noted, “Analysts tend to adopt a conservative approach leading into earnings season, but this time, that conservatism has been particularly pronounced among strategists.” He added, “I have consistently advocated for the resilience of the economy, and I too have been surprised by how earnings and profit margins have remained stable despite the tariffs implemented by Trump.”

Since July, forecasts for earnings growth have progressively improved, offering additional encouragement for equity investors. Analysts now project that S&P 500 profits will increase by 9.4% this year, an increase from 7.1% following Labor Day, showing a positive trend according to Bloomberg data.

Yardeni recently raised his year-end S&P 500 projection from 6,600 to 6,800, admitting that he has frequently had to adjust his forecasts this year. He also assigned a 25% likelihood for the S&P 500 to reach a “meltup” of 7,000 points by the end of 2025, emphasizing that those chances could rise if the Fed continues to lower borrowing costs. As of 9:53 a.m. in New York, the S&P 500 was up by 0.1%.