Evercore: "US stocks are poised to rise another 10% by the end of the year"

The US stock market is on track to grow another 10% by the end of the year, according to a new estimate from banking and investment advisory firm Evercore ISI, writes Business Insider.

Evercore CEO Julian Emanuel raised his year-end S&P 500 target to 6,000. Previously, Emanuel saw the index at 4,750 points by the end of 2024. According to the strategist's note, "the artificial intelligence revolution is in its early stages", which should lead to a continuous increase in profits.

Emanuel estimates earnings per share growth for S&P 500 companies of 8% this year and 5% next year.

"The pandemic has changed everything. Record stimulus, high household cash availability and low debt are supporting the consumer. Then came Artificial Intelligence. Today, the productivity potential of Generative Artificial Intelligence for every job and sector is at an inflection point. The backdrop of slowing inflation, the Federal Reserve's intention to cut interest rates, and steady (no economic) growth supported a Goldilocks situation (no ideal context, in which there is full employment, stability and steady economic growth)" , Emanuel said.

The 6,000-point level for the S&P 500 would mean a Price-Earnings multiple of 25x, based on strategist Evercore's estimates, or earnings per share of $238. From a historical perspective, it is a high valuation multiple, but below the peak reached during the dot-com bubble of 28x.

"High multiples are supported by the companies' proven track record of managing costs and maintaining/growing margins," Emanuel explained.

In the scenario where high valuation multiples hold, the S&P 500 can rise 30% to 7,000 points by the end of 2025. "A simple time/price extrapolation of previous periods when valuations were as high as today, may indicate the S&P 500 will reach 7,000 points by the last quarter of 2025/first quarter of 2026," Emanuel said.

Along with the price target increase for the S&P 500, Evercore ISI also changed its outlook for the technology sector to "Outperform" from "In-line (n.r. with overall market performance)" due to an aging population and increasing adoption of Artificial Intelligence technologies.

"The sector is highly exposed to the activation and adoption of the productivity potential of Generative Artificial Intelligence. It will also benefit from structural demographic trends as corporations invest in productivity as societies age and the labor market becomes more limited over the long term," Emanuel said.

It's a similar outlook to Fundstrat's Tom Lee, who expects a massive ten-year bull market driven by the adoption of AI technologies to offset labor shortages. For Evercore's Julian Emanuel, in his bull scenario, in which investors are swept up in dot-com-type exuberance, the S&P 500 may climb to 6,500 by the end of 2024.

"Stocks are far from "bubble territory,' but quick profits and abundant liquidity at a time when earnings are rising can "inflate' the index to 6,500 points," said Emanuel, quoted by Business Insider.

The S&P 500 ended this week's first trading session at 5,473 points, a new all-time high.