S&P 500 Index May Surge to a Record High This Year: Here’s Why

Key Insights

• The S&P 500 Index has soared in the past few days.
• The end of the Iran war will be bullish for American stocks.
• Data shows that the S&P 500 Index is trading at a bargain.

The S&P 500 Index jumped by over 2.2% on Wednesday as market participants cheered the new ceasefire in Iran. It soared to a high of $6,800, up substantially from the year-to-date low of $6,330. This article explores the top reasons the SPX Index may surpass its all-time high this year.

US and Iran Ceasefire to Boost the S&P 500 Index

The most important catalyst for the S&P 500 Index this year is the US-Iran ceasefire, which has suspended the war that began in late February.

This ceasefire, and potentially the end of the war, are important because they remove the risk that has existed in the market over the past few months.

Also, the end of this war will lead to lower inflation, which will push the Federal Reserve to cut interest rates later this year as the labor market is still weak. Indeed, crude oil prices plunged by over 15% on Wednesday, while bond yields moved downwards.

An interest rate cut would be highly bullish for the stock market because it would make short-term bonds less attractive to investors.

In line with this, the Fear and Greed Index has moved to the extreme fear zone. Historically, stock market bull runs start whenever the fear gauge turns red.

SPX Index is a Bargain

Meanwhile, there are signs that the S&P 500 Index is a bargain today. A recent FactSet report shows the index has a forward PE ratio of 19, which is slightly below its five-year average.

Indeed, some of the fastest-growing companies have become bargains. For example, NVIDIA, a company experiencing growth rates of over 70%, has a price-to-earnings ratio of 20, its lowest level in years.

Similarly, top companies in the Magnificent 7, like Microsoft, Apple, and Netflix have some of their lowest valuation metrics. The implication of all this is that investors will start buying the dip now that geopolitical risks are improving.

Earnings Growth Momentum is Continuing

Additionally, American companies are seeing strong revenue growth, which may continue this year.  For one, data shows that companies in the S&P 500 Index have experienced double-digit earnings growth in the past five consecutive quarters.

A FactSet report shows that the average estimate is that the upcoming earnings season will show the S&P 500 Index experienced 13.6% earnings growth, the fastest trajectory in years. In most cases, the real earnings growth figure is usually better than expectations.

Delta Air Lines, the first major company to report earnings, delivered strong results and boosted its guidance despite the disruptions from the war. Its revenue jumped to $14.2 billion, up by 9.4% YoY. It also expects annual revenue to grow in the mid-teens.

The earnings season officially kicks off next week, when companies like BlackRock, Goldman Sachs, Bank of America, and JPMorgan publish their numbers.

Wall Street analysts are highly bullish on the S&P 500 Index despite the war, with most expecting it to rise to over $7,500 this year. This explains why the Vanguard S&P 500 Index (VOO) has added over $24 billion in inflows this year.

SP500 Index Technical Analysis

Technicals suggest that the S&P 500 Index has rebounded in the past few days as investors bought the dip. It rose from a low of $6,304 in March to the current $6,757.

The index has moved back above the 23.6%Fibonacci Retracement level at $6,485. It has also soared above the 100-day Exponential Moving Average (EMA), while the Supertrend indicator has turned green.

Therefore, the index will likely continue doing well in the coming weeks, with the initial target being the all-time high of $7,000. Crossing that level could lead to further gains, potentially to $7,500.

The post S&P 500 Index May Surge to a Record High This Year: Here’s Why appeared first on The Market Periodical.