We remain bullish on U.S. stocks due to accelerating earnings growth, moderating economy and inflation, and expectations of a year-end rally in a presidential election year. The S&P 500's 15.0% year-to-date gain has led to stretched valuations and an overbought market, with narrowing market breadth signaling susceptibility to significant drawdowns.
We have raised our year-end S&P 500 target to 5725, increasing our top-down operating earnings-per-share estimate from 6.5% to 8.5% (table above). This is due to raised forecasts for GDP and inflation, improved profit margins, and significant stock buyback plans by mega-cap companies. We’ve also shifted to favoring Growth over Value and large-caps over small-caps due to technical action supported by earnings growth and a slowing economy. Changes in inflation and Fed policy could necessitate another tactical shift.
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