(Bloomberg) — The bull market in the S&P 500 has further to run as the pandemic becomes endemic mid-year, according to Julian Emanuel, who in late 2019 correctly predicted the boom in retail investing.
Continued fiscal and monetary support — even if it’s diminishing — will help underpin U.S. stocks this year along with historically low interest rates and robust U.S. economic growth, Emanuel, who recently moved to Evercore ISI from BTIG LLC, wrote in a report Sunday. International equities and value shares are poised to outperform, he added.
The S&P 500 is likely to end the year at 5,100, according to Emanuel, but 5,509 is possible if the public’s demand for equities reaches peaks of the 2000 dot-com boom. He posited a downside target of 3,575 if the pandemic is prolonged or there’s a “hangover” from spending and debt.
Evercore’s base-case target is slightly above the median 5,000 prediction for the S&P 500 at year-end as seen by strategists tracked by Bloomberg as of mid-December. Risk bubbles are already deflating, according to some market watchers.
“The ‘average’ bull of the past century lasts 51 months, rising 154%,” Emanuel said. “The monthly gain for this bull is one of the strongest; liquidity and growth without a recession on the horizon – the current rally is anything but ‘average.’”
Volatility will remain elevated from the unprecedented combination of economic strength, inflation and earnings, and still abnormally low rates, he said.
Emanuel sees financials, health care and industrials outperforming, and expects communication services, consumer discretionary and utilities to underperform. He recommends buying growth stocks that have been correlated with value and underperformed since September 2020, using risk reversals in the Health Care Select Sector SPDR Fund (ticker XLV) to position for outsized gains, and buying Utilities Select Sector SPDR Fund (ticker XLU) put options.
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