S&P 500 Year-End Target Raised to 5,535 at Wells Fargo

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Bloomberg Apr 26 03:25 · 12k Views

Chris Harvey, head of equity strategy at Wells Fargo, explains his firm’s call for a year-end target of 5,535 for the S&P 500 and says it does not depend on the number of rate cuts this year from the Federal Reserve.

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Transcript

  • 00:00 5535 up from 4625, that's a big change.
  • 00:05 Can we start there?
  • 00:06 What changed?
  • 00:06 That is a big change.
  • 00:07 So we knew we were going to move numbers higher, we just didn't know how much higher because I didn't know.
  • 00:13 You know we looked at things last year and we were up, we were expecting Mark be up 10%, maybe 15.
  • 00:18 We couldn't figure out,
  • 00:19 you know
  • 00:20 that was pretty good at the time, but we missed the market by 10%.
  • 00:23 What we figured out is the markets just being a lot more aggressive on how it's discounting.
  • 00:28 It's discounting a lot,
  • 00:29 lot further into to the future
  • 00:31 and it's using a much more aggressive
  • 00:34 forward multiple.
  • 00:35 And so when we took that into consideration, we realized, hey we can get to 270 on on 2025, we can use a 2021 multiple and that gets us over 5500
  • 00:45 and and so that's really how we got there
  • 00:47 and what we think is going to happen is not the economy is going to be really strong,
  • 00:51 it's a mix shift.
  • 00:52 The winners are going to keep winning
  • 00:54 and the more profitable companies are going to make up a bigger percentage of the S&P 500 and that's how you're going to get there.
  • 00:59 So within this is a big Corbett on mega cap tech,
  • 01:03 mega cap tech, but but really more profitable companies, most of a lot of the mega cap tech are those
  • 01:08 but it's it's not every single
  • 01:10 mega cap tech is a profitable company.
  • 01:12 But yes, along those lines is there anything in the earnings that you've seen or the spending by said companies
  • 01:17 that makes you concerned?
  • 01:19 No, what what makes me concerned is we really haven't learned anything new at this point in time.
  • 01:24 Consumer still value oriented, still selective.
  • 01:27 High end is doing better than low end.
  • 01:29 Kind of knew that
  • 01:30 people like to travel services over goods and things.
  • 01:33 We knew that as well.
  • 01:34 Economy is a little bit stronger than expected,
  • 01:37 not new news.
  • 01:37 What we're waiting for and what we're looking for and what we think is
  • 01:40 this AI spend, it's not a discretionary spend and we'll see that going forward.
  • 01:45 Maybe that's part of what we saw last night
  • 01:47 and and what we think is again, you're going to have a separation.
  • 01:50 You've already had that separation between the winners and losers.
  • 01:52 That separation is just going to get bigger and bigger and bigger.
  • 01:54 The separation has been in earnings returns, but it's also been in, in earnings
  • 01:58 just bliss straight out.
  • 01:59 We saw Southwest, for example coming out earlier this morning underperforming wider loss.
  • 02:04 You say people like to travel.
  • 02:05 There are signs that that's actually being challenged on the margins.
  • 02:08 We just got results from American Air similar type of disappointment.
  • 02:12 How much does this make you shift to
  • 02:15 some of the companies that you like?
  • 02:17 Is this basically a bet
  • 02:18 that the cash winners and the AI darlings can keep going,
  • 02:22 but the broadening out isn't going to happen?
  • 02:24 Yeah.
  • 02:24 So, Lisa, there.
  • 02:25 There's a lot there, right?
  • 02:26 If we look at DD is a lot different than Southwest and Delta had a lot more positive things.
  • 02:31 It's a higher end consumer.
  • 02:32 It's also more business oriented,
  • 02:34 right?
  • 02:35 What do we like?
  • 02:36 What's going to change?
  • 02:37 Well, the bigger question is we see two trades in the marketplace.
  • 02:41 It's the momentum trade as a reinflation trade.
  • 02:43 And I think that momentum trade will continue because again the winners will keep winning.
  • 02:47 As far as our positioning, what we want to do and what we've been doing for the last
  • 02:51 year and a half is we want to Barbell Communications with something more defensive.
  • 02:55 Now what we want to do is Barbell Communications with with healthcare or utilities.
  • 02:59 We want some balance.
  • 03:01 We want some protection in that portfolio, but we do want to participate to the upside.
  • 03:05 If the Fed doesn't cut this year or only cuts once,
  • 03:08 how do you change your target again?
  • 03:09 Don't change it at all.
  • 03:10 Really.
  • 03:11 Yeah, because.
  • 03:11 Because the reason is if you go back to 21 when the Fed was way too aggressive
  • 03:16 and then you roll in at 22, you ran into a buzz saw.
  • 03:19 Why was that?
  • 03:20 Well, you were too accommodative in 21 and then you turned everything on its head in 22.
  • 03:25 Well, you're not going to see that going forward.
  • 03:27 You're going to see a Fed that's going to cut, it's going to be a multi year cut, multi year easing cycle and that continuity is going to help.
  • 03:34 What else is backing that up?
  • 03:36 This secular AI trade is not going anywhere.
  • 03:38 It's actually broadening out
  • 03:40 to power, to electrification
  • 03:42 and then the M and A story keeps getting better and better and better.
  • 03:45 So
  • 03:46 whether it's one cut, 2 cuts, three cuts, we don't care because it's the start of a bigger cycle.