(Bloomberg) – Stock market strategists and portfolio managers who expected stocks to go nowhere in 2023 are changing their minds as their fears turn to fears of missing out on a possible rally.
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Morgan Stanley Investment Management’s Andrew Slimmon thinks his recent estimate that the S&P 500 index will hit 4,200 in December is underestimated, the bank’s senior portfolio manager in the investment management division said in a phone interview. The benchmark indicator for US stocks could rise towards 4,600 by year-end as markets price in an earnings rebound in 2024 and investor FOMO kicks in.
“If I were a financial advisor and it wasn’t until October or November and I wasn’t making money for my clients because I have a lot of money, I would get nervous,” he said. “My guess is that cash will come back into the market later this year.”
Slimmon’s heightened expectations come just days after Bank of America equity strategist Savita Subramanian raised her year-end price target for the index to 4,300 from a previous 4,000, with a new range of 3,900 to 4,600.
“With the exception of some very persistent bears hot on their heels, more and more people will be reluctant to increase their estimates,” Slimmon said.
Despite a choppy May, US equities have remained resilient this year against a range of headwinds, from higher interest rates to banking sector turmoil to the prospect of an impending recession. Still, the S&P 500 is up more than 7% in 2023, while the tech-heavy Nasdaq 100 index is up 24%.
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Even skeptics who have sounded the alarm that this year’s gains show a dangerous lack of breadth are beginning to change their minds.
“Low latitude is not a harbinger of doom and gloom,” Subramanian said in an interview with Bloomberg Surveillance on Tuesday.
What traders are beginning to recognize are signs of FOMO.
Investors added $21 billion worth of new long positions to the S&P 500 last week, according to data from Citigroup Inc. — one of the largest weekly streams of new long positions the company has observed in recent years. Meanwhile, the prime brokerage unit of Goldman Sachs Group Inc., including hedge funds that are both bullish and bearish bets, bought US stocks for two weeks, with buying hitting its fastest pace since October after a period of sustained selling.
Overall, the setup seems ripe for a potential stock market uptrend in the second half of the year.
“If you look back at history when we had drawdowns like last year, the behavioral element is consistent over time,” Slimmon said. “After big declines people get bearish, but then when the market starts to recover – and we’ve had two straight quarters of positive returns now – the behavior starts to attract investors and you can see that fear of FOMO is building . ”
(Adds in second paragraph that Andrew Slimmon works for Morgan Stanley Investment Management.)
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