The S&P 500 index and its associated exchange-traded funds (ETF) like the SPY, VOO, and IVV, surged to a record high on Thursday as investors cheered the Federal Reserve boost. The blue-chip index soared to a high of $5,722, a 20% increase from where it started the year.
Similarly, the other popular indices like the Nasdaq 100 and Dow Jones continued soaring, helped by top technology companies like Nvidia, Apple, Microsoft, and Meta Platforms.
Analysts boost SPX index forecast
Wall Street analysts have continued to boost their S&P 500 index forecasts, in line with the Federal Reserve interest rate cut.
In a note, Brian Belski, the chief analyst at BMO Capital Markets, predicted that the index would jump to $6,100, or 6.85% from its current level. It was his second time to boost the index’s forecast this year. He said:
“We continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted.”
Meanwhile, Julian Emanuel, an analyst at Evercore ISI raised the estimate for the index to $6,000.
Other analysts have boosted their S&P 500 forecast. In a note, analysts at Deutsche Bank boosted their estimate. Others who have remained optimistic about the index are from Citigroup, UBS, and Goldman Sachs.
Analysts are citing a few things for the bullish view. First, the ongoing interest rate cuts will likely lead to a rotation from bonds to stocks. See, when the Fed hiked rates, many investors moved to the high-yielding bonds.
Now, with these yields starting to drop, many of them will start rotating back to stocks. This is a big deal since the volume invested in these funds has jumped to over $6.1 trillion in the past few months.
Second, corporate earnings have been quite strong and this trend will likely continue. The second-quarter earnings growth stood at over 10% while the third quarter is expected to come in at over 4%. This will be the fifth quarter of earnings growth by American companies.
Third, stocks could be supercharged as the presidential campaign period nears its end. Most analysts believe that Kamala Harris and Donald Trump’s policies are not friendly for stocks. Harris wants to hike taxes while Trump wants to bring tariffs, all of which are risky for equities.
However, in the long term, stocks do well regardless of who is in the White House. Historically, the S&P 500 index has jumped to a record high in most presidencies.
Triple witching threat
Looking ahead, the next potential risk for the S&P 500 index is Friday’s Triple Witching event in which $5.1 trillion worth of options tied to stocks, indexes, and ETFs will expire.
$2.6 trillion of these are tied to indexes while $620 billion are linked to options on futures. Most of the futures interest in this level is focused on the S&P 500 index around the $5,500 level.
$635 billion are tied to ETF options while $600 billion will be tied to single stocks. Historically, stocks tend to have some volatility when the triple witching happens.
The risk, however, is that this triple witching is followed by a sharp decline in stocks. Data shows that the S&P 500 has typically dropped by about 1.1% after it happens. The key exceptions to this was in 1998, 2001, 2010, and 2016.
On the positive side, this year’s witching is happening after the Fed changed its tune on interest rates, which could help to support the market.
S&P 500 index forecast
SPX chart by TradingView
The daily chart shows that the SPX index has been in a strong surge, and on Thursday, it moved above the key resistance point at $5,670. This was a notable level since it was the highest point in July and August. It was also the upper part of the double-top pattern that was forming.
Meanwhile, the Relative Strength Index (RSI) has risen above the neutral point at 50 and is nearing the overbought level of 70. This is a sign that the index has more upside as the momentum continues.
Therefore, the path of the least resistance for the SPX index is bullish, with the next point to watch being at $6,000.
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