BMO Capital Raises S&P 500 Price Target to Record High of 6,100, Predicts Strong Fourth Quarter
In a recent note, BMO Capital raised its price target for the S&P 500 to a new consensus high of 6,100, representing a 9% increase from its previous estimate of 5,600. Despite a shaky start to September, recent gains have almost fully recovered those losses, leading BMO Capital to be optimistic about the market's performance for the rest of the year.
BMO analysts are surprised by the strength of market gains and have revised their target based on historical patterns. They noted that years with strong gains in the first three quarters typically see stronger-than-average fourth quarters. In fact, in the eight years since 1950 when the S&P 500 gained between 15% and 20% through Q3, the average fourth-quarter return was 6%, significantly higher than the average for all years.
One key factor supporting BMO's bullish stance is the broadening market participation. While gains earlier in the year were driven by big tech stocks like Microsoft, Apple, and Google, the rest of the index has shown significant improvement in recent months. BMO believes this broader participation will continue to drive market gains even if big tech stocks start to slow down.
Despite the elevated P/E ratio of 24.4x implied by BMO's revised target, the firm believes the current market environment is similar to the mid-1990s when the index maintained a higher-than-20x multiple for several years. With strong macro and fundamental underpinnings, BMO Capital expects the S&P 500 to maintain its upward momentum through the end of the year.
Analysis: BMO Capital's bullish outlook on the S&P 500 is based on historical trends and broadening market participation. Their revised price target of 6,100 suggests a strong fourth quarter and continued market gains, even if big tech stocks start to slow down. Investors should consider these factors when making decisions about their portfolios, as the market may continue to perform well in the coming months.