Wall Street strategists see year-end gains despite rate pressure

Wall Street strategists see stocks rising into year-end, citing earnings expectations and historical trends even as bond yields remain near 24-year highs. Truist chief investment officer Keith Lerner said the market’s path of least resistance is higher.

Wall Street expects S&P 500 earnings to increase 30% year over year, with major banks starting the quarterly reporting season. Lerner also noted that the Technology sector’s price-to-earnings ratio is around 21, down from roughly 35 at the same time last year.

The fourth quarter has been positive for the S&P 500 about 84% of the time in midterm election years, with an average gain of about 7%, according to the article. Lerner pointed to 2018 as an exception, when investors were concerned that the Federal Reserve might tighten too much.

Rising yields have weighed on forecasts. Yardeni Research lowered its year-end S&P 500 target to 7,900 last month, a level that implies just over 1% upside from then-current levels. Wall Street expects the Fed to hold rates steady in October, following its unanimous quarter-point hike in September.

Stocks recovered on Friday after a Bloomberg report said OpenAI expects to reach or exceed $70 billion in annualized revenue by year-end. Yorkville Ives partner Dan Ives called recent declines “buying opportunities, not the time to be skittish.” UBS recommended a diversified approach to technology, including semiconductor and hardware companies it sees as beneficiaries of AI spending.