- Even as stocks are near record highs, JPMorgan strategists see seven drivers pushing the market even further.
- The bank reiterated its S&P 500 target of 4,400 on Friday, which implies a 12% jump for the year.
- Below are the reasons the bank is still bullish, from strong household savings to a healthier job market.
- Sign up here for our daily newsletter, 10 things before the opening bell.
Stocks jumped to record highs several times during the week. JPMorgan sees a handful of reasons even higher levels are in store.
Investors faced a fork at the start of the month. A new stimulus backed by President Joe Biden and the Democrats is expected to supercharge the US economic recovery, but more conservative pundits have voiced fears the package could dangerously raise inflation. Traders have largely ignored these fears, but high stock valuations now present a risk of their own.
Strategists led by Dubravko Lakos-Bujas are maintaining the economic reopening and new budget support trumps everything. The team reiterated its S&P 500 target of 4,400 on Friday, which implies a jump of about 12% from current levels. The outlook was already based on a strong recovery in consumption, but several new factors supported the bank’s appeal.
Here are the seven reasons JPMorgan sees spending rebounding and helping the stock market recover.
(1) Quick reopening
The drop in the number of COVID-19 cases and continued vaccine deployments put the U.S. economy within months of reopening much of its economy, JPMorgan said. Policy makers expect the pandemic to “effectively” end within the next 40 to 70 days.
(2) New stimulus
About $ 30 trillion in stimulus has helped the global economy through the pandemic, and Democrats are stepping up to approve another $ 1.9 trillion package. This deal can further accelerate the rebound, especially by prioritizing jobs, JPMorgan said.
(3) Repressed savings
U.S. households have record cash reserves with savings totaling about $ 11 trillion, according to the bank. The unwinding of these funds can revive small businesses and stimulate new hires.
(4) Rising wealth
Healthy markets during the pandemic may further increase Americans’ wealth. JPMorgan estimates that growing equity in home, pension and 401,000 plans will total $ 48 trillion in total net worth.
(5) Debt levels of healthy households
Americans will also emerge from the pandemic with solid results. The debt service ratio is at its lowest level in four decades and consumer loan default rates are at historically low levels, JPMorgan said.
(6) Improvement of the labor market
A falling unemployment rate, a growing average work week and perhaps a higher minimum wage will all contribute to a healthier job market, strategists said.
(7) Millennial bump
A record 5 million millennials will reach the inflection point of property research, according to the team. Increasing spending by this group will move more savings into the economy.
Read more: JPMorgan Says Buying These 40 Stocks Expected To Soar As Bond Yields Surprisingly Surge
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