Evercore ISI sees downside risk for S&P 500 in 2024

As stocks continue to rally, analysts at various investment banks have been providing their forecasts for the S&P 500.

In a recent note to clients, Wells Fargo told investors that they are raising their S&P 500 price target and earnings per share forecast. The firm raised its 2024 year-end S&P 500 target to a Street-high 5535 from 4625, implying a 6.4% upside. In addition, the 2025 EPS rises to $270.

“In our view, the bull market, AI's secular growth story, and index concentration have shifted investors' attention away from traditional valuation measures and toward longer-term growth and discounting metrics,” said the bank.

They note that since the end of 2022, investors' valuation thresholds seemed to have decreased while time horizons increased, a “function of this secular optimism.”

While they believe systemic risk is on the rise as various incentives spur risk and leverage-seeking, they don’t feel the systemic risk is not close to a top, another major factor driving the firm’s aggressive valuations and time horizon.

“Looking forward, we believe equities have some upside from here, but still anticipate a volatility spike in 1H24 while a 2H24 ‘melt-up’ appears increasingly likely, partly driven by political outcomes that support greater M&A and partly by an anticipated multi-year easing cycle that supports risk-taking,” added Wells Fargo.

Evercore ISI expects S&P 500 fall from here

While Wells Fargo is positive, analysts at Evercore ISI have taken a slightly different view, raising their 2024 S&P 500 EPS estimate to $231 from $221 and leaving their year end S&P 500 target unchanged at 4,750.

However, the firm believes that while a strong economy still defies the potential for a recession after two years of tightening, a second-quarter pullback is supported by inflation, a history of weak returns from the current 23x P/E, and “when energy shares lead.”

Evercore’s price target implies a 20.6x multiple on $231e, which is near the 90th percentile of valuation since 1960 when inflation was 2.6%+.

Furthermore, the firm explains that inflation data calls into question the US Federal Reserve’s three rate cuts view among investors and some Fed officials. They explain that the inability of the S&P 500 to follow when Energy shares claim the leadership mantle leaves them with a base case of a second-quarter pullback and a year-end S&P 500 at 4,750.

“Momentum stocks have lost steam since NVDA’s large reversal on ⅜,” stated Evercore. “Seasonal Momentum underperformance is typical for April, common at Springtime trading bottoms (2020, 2009) and tops (2022, 2000).”