Evercore ISI Forecast for S&P 500
Evercore ISI projects the S&P 500 to hit 6,600 by mid-2025, driven by "animal spirits" ignited by the outcome of the US election.
Understanding "Animal Spirits"
Animal spirits refer to the influence of human emotions on financial decision-making during uncertain and volatile periods.
Post-Election Market Reaction
Trump’s victory in the 47th US election resulted in a notable market response. The S&P 500 recorded its largest post-election day gain in over a century, closing with a 2.5% rise, while the small-cap Russell 2000 surged nearly 6%.
Evercore believes this bullish trend is more than a short-term fluctuation; it signals the beginning of a broader "performance chase" expected to significantly uplift the market in the months ahead.
Focus on Small-Cap Stocks
Small-cap stocks, especially those within the Russell 2000, are viewed as crucial players in this anticipated rally. Evercore identifies a “catch-up” opportunity for small caps, which have lagged behind major indices since hitting all-time highs in 2021. Factors contributing to their expected resurgence include:
– Moderating inflation
– Easing financial conditions
– Expected Federal Reserve rate cuts
Evercore strategists, led by Julian Emanuel, indicated that small-cap stocks are significant beneficiaries of these factors. They noted that the Russell 2000 currently trades at a 19% premium to the S&P 500, which is below its 32% average premium over the past decade, highlighting attractive valuations.
Sector Performance
The sectors anticipated to benefit the most include Technology, Communication Services, and defensive areas like Consumer Staples and Health Care, particularly in software and biotechnology.
Future Federal Reserve Policies
Evercore’s bullish outlook for US stocks is supported by expected Federal Reserve policy changes, including a quarter-point rate cut anticipated in December, followed by cuts each quarter in 2025, with a pause expected after September.
Conclusion
Strategists emphasized that last week’s election was "momentous". In a closely contested race, Trump achieved a surprising victory, winning crucial swing states, securing the Senate, potentially gaining a House majority, and winning the popular vote.
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