Yardeni Research analysts see a positive trajectory over the next two months despite September’s historical trend of being a challenging month for stocks.
The research firm expects the expected monetary easing by the US Federal Reserve, which begins with a 25 basis point cut in the federal funds rate on September 18, to support the market.
Furthermore, the Federal Open Market Committee is scheduled to release its Summary of Economic Projections on the same date, which is widely expected to point to further rate cuts in the following months.
The S&P 500 has already gained a whopping 18.4% since the start of the year, which may reflect investor optimism about good news to come. Yardeni Research also noted that while the market tends to favor political gridlock, stocks have historically performed well regardless of which party is in power.
Analysts said the upcoming political events on November 5 are too early to affect current market expectations.
Geopolitical risks remain a concern, especially as the situation has continued since Russia invaded Ukraine on February 24, 2022. However, low oil prices and record highs in stocks indicate resilience in the face of these risks.
Domestically, the U.S. economy is growing steadily, inflation is approaching the Federal Reserve’s 2% target, and analysts are strongly expecting the S&P 500 to achieve operating earnings per share in the year and next, with future S&P 500 earnings at all-time highs.
Despite the S&P 500’s valuation multiple looking a bit overvalued at 21.1, Yardeni Research suggests that better-than-expected economic indicators could lead to fewer rate cuts over the next 12 months, which could impact the bond market more than the stock market.
“We are having a hard time figuring out what could go wrong in September,” the analysts wrote in a research note on Monday. “So the path of least resistance may continue to push stock prices higher. We still expect a year-end rally to 5,800 on the S&P 500, which may already be underway.”
The company also expects inflation to rise to between 4.00% and 4.25% in the coming weeks.