January 23, 2022

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The S&P 500 is headed for 5,000, says UBS. Here’s the when and how.

6 min read

On the last trading day of August, we can reflect on a relentless march higher for stocks that has barely paused this summer.

“The S&P 500 has posted at least 1 new closing high every week since the week of June 7, 2021, 13 weeks in a row. August 2021 has posted 12 new closing highs in the 21 trading days, with one day left to go,” noted Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

“Year-to-date the index has posted 53 new closing highs, and is tied for the 4th highest in index history (from 1926),” added Silverblatt, who added that even if the market seems wacky, “if you’re not in it, you’re nuts, and most likely out of a job (keep your finger on the button).”

Our call of the day from UBS’s chief investment officer Mark Haefele, sees the S&P 500 is on a solid path to another big milestone — 5,000. That’s his end-2022 goal, while the bank sees the index reaching 4,600 by the end of this year.

“The S&P 500 has broken above 4,500 for the first time, taking gains for 2021 to over 20{3c469f9fd78f2eaf6f4d0dc733f3cac116bbb4fd623f97421c823e27a2df7dab}. This might seem surprising given the recent run of negative news, including disappointing U.S. consumer data and a continual rise in COVID-19 infections. But we believe that the momentum toward reopening and recovery is intact and that there is further upside to equities,” Haefele told clients in a note.

He rattles off a list of supportive factors, including a fifth-straight quarter of robust results with more than 85{3c469f9fd78f2eaf6f4d0dc733f3cac116bbb4fd623f97421c823e27a2df7dab} of companies beating second-quarter earnings and sales estimates; aggregate corporate profits up nearly 90{3c469f9fd78f2eaf6f4d0dc733f3cac116bbb4fd623f97421c823e27a2df7dab} from year-ago levels; earnings nearly 30{3c469f9fd78f2eaf6f4d0dc733f3cac116bbb4fd623f97421c823e27a2df7dab} higher than pre-pandemic levels; and revenue growth so robust it’s overwhelming cost pressures.

“We believe cost pressures for businesses should subside as supply begins to catch up. In addition, consumers’ balance sheets are at their strongest in decades due to the significant buildup in household savings over the past year, and retailers will continue to restock to keep up with demand,” said Haefele.

Show us the stocks? “With the economic recovery broadening, we expect cyclical sectors, including energy and financials, to take the lead,” he added.

Read: The S&P 500 hasn’t seen a year-to-date rally this strong since 1997. What’s next?

The chart

Thomas Lee, founder of Fundstrat Global Advisors, notes that history is on the side of a strong September when markets see an equally upbeat first half.

That’s even as investors worry about “overbought” markets due for a pullback and stats showing September returns since 1928 have been down about 0.1{3c469f9fd78f2eaf6f4d0dc733f3cac116bbb4fd623f97421c823e27a2df7dab}. In a note to clients, Lee counters that seasonality factors change when a first half is strong — the first six months of 2021 saw a more than 13{3c469f9fd78f2eaf6f4d0dc733f3cac116bbb4fd623f97421c823e27a2df7dab} gain, the 10th best since 1928.

That should mean a stronger September than expected and an intact “everything rally.” Here’s his chart:

Read: If you’ve got the stock market jitters, here are 20 companies in two defensive sectors

China’s delta drag and Moderna’s vaccine edge

Zoom Video
shares are sinking after the videoconferencing group reported its first billion-dollar quarter Monday, but a somewhat disappointing outlook.

shares are dropping after SEC Chairman Gary Gensler told Barron’s on Monday that a controversial practice that made billions for brokers and high-frequency trading firms could be axed.

Shares of Lightning eMotors
stock is surging after the all-electric powertrains and commercial vehicles company announced a partnership with REV Group
unit Collins Bus to make all-electric school buses.

China’s official nonmanufacturing purchasing managers index unexpectedly contracted in August, dragged by cooling service activity due to the Delta variant outbreak. The official gauge of factory activity also fell by more than expected as demand weakened.

COVID-19 vaccine produced higher levels of antibodies over Pfizer

and BioNTech’s
according to a study of over 2,000 Belgian health-care workers.

The Centers for Disease Control and Prevention raised its COVID-19 travel advisory for Germany and bumped Switzerland, Guam, Saint Lucia, Puerto Rica and Guam among other spots to the highest level 4 warning. That Monday move came as the EU yanked the U.S. from its safe-travel list.

More than a million people are without power in Louisiana and Mississippi following Hurricane Ida, with officials warning it could be weeks before heavily damaged power grids could be repaired.

On the other side of the country, thousands fled California’s South Lake Tahoe resort on Monday in bumper-to-bumper traffic at times as the Caldor fire jumped highways.

Data for Tuesday includes the Chicago PMI, which dropped in August, while the the June Case-Shiller national home price index showed a third-straight monthly rise in June. Still to come is the August consumer confidence index.

The markets



slipped south in early action, while crude oil
is also down, as refineries struggle in the aftermath of Hurricane Ida. Three-month aluminum prices on the London Metal Exchange hit the highest since May 2011, driven by China output cuts. The dollar
is under pressure. Bitcoin
traded lower.

Random reads

U.S. Open champion Naomi Osaka has her eye on cryptos.

Kid gate-crashes politician mom’s TV interview in New Zealand, waving a rude carrot.

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