JPMorgan raises S&P 500 year-end forecast after sell-off, says slowdown fears are overblown

Published Tue, Jul 20 20217:33 AM EDTUpdated Tue, Jul 20 202110:19 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The stock market will shake off its recent pullback and move sharply higher by the end of the year with reopening trades like travel stocks driving the move, according to a top strategist at JPMorgan. Stocks plunged on Monday, with the S & P 500 falling more than 1.5% in a broad sell-off as fears about the spread of Covid-19 variants appeared to spook traders. However, JPMorgan's Dubravko Lakos-Bujas said Tuesday in a note that the pullback would be short-lived. He also raised his year-end target on the S & P 500 to 4,600 from 4,400, which would be an 8% jump for the index. "We remain constructive on equities and see the latest round of growth and slowdown fears premature and overblown," the note said. "Even though equity leadership and bonds are trading as if the global economy is entering late cycle, our research suggests the recovery is still in early-cycle and gradually transitioning towards mid-cycle." The strategist said consumer discretionary, semiconductors, banks and energy stocks were strong buys at current levels, arguing that the reopening trade looked attractive after the pullback. "Reopening of the economy is not an event but rather a process, which in our opinion is still not priced-in, and especially not now given recent market moves. For instance, an increasing number of reopening stocks are now down 30-50% from 1Q21 highs (i.e. travel, cruise lines, oil) and some have reversed back to last year June levels when COVID-19 uncertainty and economic setup were vastly worse than today," the note said. Lakos-Bujas also hiked his S & P 500 earnings-per-share estimate for the full year to $205 per share from $200. The year-end target of 4,600 is on the high side of Wall Street estimates for the S & P 500. Other top strategists, including Morgan Stanley's Mike Wilson , have cautioned that the market could trade sideways or even retreat during the second half. The median target in the CNBC Market Strategist Survey is 4,325. Even after Monday's pullback, the S & P 500 is still up more than 13% for the year, closing Monday at 4,258.49.

The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New New York, January 16, 2019.

Carlo Allegri | Reuters