Wall Street: "S&P500 to rise an average 11% next year"... Unanimous optimism is 'worrisome'

S&P500 expected to be at least 7,000P and at most 8,100P at next year-end

"Unanimous optimism makes one more vulnerable to unexpected shocks"

Legendary investor Warren Buffett said, "Be fearful when others are greedy and greedy only when others are fearful." However, investors who kept this advice in mind at the end of 2023 and the end of 2024, when the U.S. market rose by double digits, were disappointed. This is because the S&P500 index of the U.S. market has risen by double digits for three consecutive years through this year.

Wall Street forecasters are unanimously optimistic about the stock market next year. Brokerages expect that the U.S. market, which rose by double digits for the past three consecutive years, will rise by an average of 11% next year. They forecast that it could be a fourth consecutive year of double-digit gains.

According to Bloomberg's aggregated data on the 22nd (local time), Wall Street firms' year-end S&P500 targets for next year were almost all concentrated between 7,000 points and 8,100 points.

Oppenheimer was the most optimistic, predicting the S&P500 would rise to 8,100 points by next year-end. The least optimistic, Stifel Nicolaus, still predicted 7,000 points, higher than current levels. On average, they forecast an 11% annual increase. Bloomberg said that the gap between the highest and lowest forecasts being 16% is the smallest in 10 years.

Bloomberg pointed out that everyone speaking in the same direction is generally a sign that contrarian thinking may be needed. It said that the very fact that everyone is leaning in one direction is an imbalanced phenomenon that could resolve itself. There are many risk factors in the current market.

U.S. inflation still exceeds the Federal Reserve's target, so hopes for monetary policy easing could turn into disappointment. The unemployment rate has steadily risen in recent months. Massive investment spending in the artificial intelligence (AI) sector has yet to translate into profits.

Steve Sosnick, chief strategist at Interactive Brokers, said, "It is worrying that forecasts are unanimous and show similar patterns." He explained, "If everyone expects the same thing, it's as if it's already reflected in the market." He added, "This is especially true because the basis for optimistic forecasts is similar factors such as rate cuts, tax cuts, and continued AI prospects."

Oppenheimer and Deutsche Bank forecast that the S&P 500 will surpass the 8,000 level by the end of December next year. Stifel and Bank of America gave 7,000 points and 7,100 points respectively, which are also above last weekend's closing price.

Optimists pointed to expectations of economic growth that would drive corporate earnings. They forecast that tax and regulatory easing and the Fed's expected two 0.25-percentage-point rate cuts would stimulate economic activity. Conversely, some market participants who are pessimistic about next year's market called this complacency.

Dave Mazza, CEO of Roundhill Financial, said, "If everyone is standing on one side of the boat, market volatility can increase due to poor performance or unexpected policy changes, even without a recession."

Announcing S&P 500 index forecasts has long been a Wall Street practice. However, these predictions are notorious for often missing the mark. According to Piper Sandler's data, S&P 500 targets tend to lag actual index performance by about two months. Individual stock targets showed the same pattern.

Despite concerns about technological concentration and AI, optimism about a solid economic outlook, bolstered by recent rate cuts and the White House's tax reform proposal, is lifting investor sentiment.

Greg Bootle, head of U.S. equity and derivatives strategy at BNP Paribas, said, "The fact that everyone has generally become optimistic because the stock market keeps rising is risky." He added, "One could think the most likely outcome is continued market gains, but one should keep in mind that the impact could be larger if there is an external shock."

Jeong-a Kim, guest reporter kja@hankyung.com