Deutsche Bank's Chadha Targets S&P 500 at 7,000 as Economy Roars

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Deutsche Bank's Chadha Targets S&P 500 at 7,000 as Economy Roars

watchlist :: 2024-11-26 :: source - bloomberg

By Michael Msika

(Bloomberg) -- The S&P 500 will hit 7,000 points by the end of next year, according to Deutsche Bank AG’s Bankim Chadha, making him the most optimistic among Wall Street strategists predicting further gains for US stocks.

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Chadha’s target — the highest among those tracked by Bloomberg — implies a surge of 17% from the current level. The forecast far surpasses those of peers at Goldman Sachs Group Inc. and Morgan Stanley, who recently boosted their views and expect the benchmark to reach 6,500 by the end of 2025.

The S&P 500 has surged more than 25% this year, on track for a second year of returns above 20% — a run that’s occurred just four times in the past 100 years. A resilient economy, slowing inflation and expectations of Federal Reserve easing propelled the benchmark to a record, driven by tech mega caps. Chadha has been bullish on the US stock market all year, raising his target for the index several times.

“We see steady robust momentum continuing into 2025, with earnings-per-share growth in the low double digits,” Chadha and his team wrote in a note on Monday.

S&P 500 EPS is on track to rise 11% in 2024 to $253, in line with typical growth outside recessions, Chadha said. That would likely increase to $282 in 2025. But should global growth pick up to the upper end of its historical range, earnings growth could climb 17%, taking S&P EPS as high as $295, he added.

The two-year boom for US stocks has created a major valuation gap with the rest of the world, with the S&P 500 now trading around 24 times its forward earnings. That’s a post-pandemic high, and closing in on the record last seen during the tech bubble. Yet high valuations are justified band could expand further, according to Chadha, who cited above-trend earnings growth and payout ratios over the past 10 years. Rising buybacks and equity flows have also been supportive.

While Donald Trump is likely to implement policies with both positive and negative implications for growth, the sequencing will be key. It’s likely to be similar to the last Trump administration, when tax cuts and deregulation came first, followed by tariffs, the strategist said, adding economic growth will likely remain the priority.

“We see various aspects of the cycle still to come,” Chadha wrote, citing factors including a move from de-stocking to re-stocking, a pickup in capital expenditure outside of the technology sector, a manufacturing recovery, higher consumer and corporate confidence and a rebound in capital markets and M&A activity.