The S&P 500 Index has surged this year and is now hovering near its all-time high, with several top Wall Street analysts expecting further upside. Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Societe Generale, and Morgan Stanley (NYSE:MS) expect the index to reach 8,000 this year.
Oppenheimer and Citigroup (NYSE:C) are more optimistic, as they see it climbing as high as 8,100. These forecasts could prove accurate, supported by several key market metrics and underlying trends.
S&P 500 Index is Being Boosted by Earnings Growth
A key catalyst that may boost the S&P 500 Index is that its constituent companies are reporting their best earnings in years. A report by FactSet (NYSE:FDS) shows that the blended second-quarter earnings growth was 50.4%, its best performance in five years.
Notably, while this growth is most driven by the technology sector, other industries are also thriving. For example, banks are benefiting from the elevated interest rates and the ongoing mergers and acquisitions and trading. Energy companies like Marathon, ExxonMobil, and Chevron also benefited from the high energy prices.
Most importantly, many companies in the S&P 500 Index offered higher estimates than expected, suggesting that they are weathering the US-Iran storm well.
US Companies are Undervalued
Meanwhile, despite the ongoing S&P 500 Index’s bull run, there are signs that companies are undervalued. The FactSet data shows that the index has a forward price-to-earnings ratio of 20, slightly higher than the five-year average of 19.9.
A closer look shows that some of the fastest-growing companies are trading at bargain prices. For example, Micron (NASDAQ:MU) has a forward PE ratio of 13 despite its quarterly revenue soaring to $41 billion. Nvidia (NASDAQ:NVDA) has a multiple of 25, while Amazon (NASDAQ:AMZN) has 21.
These metrics mean that investors may continue rotating to the equities market because of the cheap valuations and strong growth.
Odds of the Federal Reserve Hiking Rates are Falling
The stock market may also benefit as odds that the Federal Reserve will hike interest rates fall. A Polymarket poll shows that odds of these hikes have dropped to 46%, its lowest level since June this year. These odds peaked at 75% in June this year.
These odds dropped after the US released key economic data this week. Consumer and producer inflation dropped slightly in July, while retail sales experienced the biggest drop in over a year. Another report showed that the economy lost 23k jobs last month. As such, hiking interest rates may have a negative impact on the economy. US stocks tend to do well when odds of hikes are falling.
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