Bank of America Merrill Lynch isn’t letting the latest escalation of trade tensions derail its bullish call for U.S. stocks.
They see the S&P 500 (^GSPC) crossing 3,000 by the third quarter, which would be a gain of roughly 4% from the S&P 500’s current level of 2,882. A move to 3,000 would also represent a record high for the index, after its previous intraday record of roughly 2,954 reached on May 1.
There are a few paths to this threshold, according to Bank of America.
First, its internal Bank of America Merrill Lynch Fund Manager survey released this week, along with the Philadelphia Fed manufacturing index, released Thursday, showed that investors and businesses largely ignored President Trump’s latest tariff increase against goods from China. This news came to light in a May 5 tweet from Trump, when he announced the “10% will go up to 25% on Friday,” referring to tariffs. Over the next week, the S&P 500 fell almost 5% from its May 1 high and then recovered in recent days.
The Philadelphia Fed manufacturing index for May climbed to its highest level in four months to 16.6. April’s reading was a weaker 8.5. This suggests the increase in tariffs hasn’t dinged manufacturing sentiment.
Plus, companies are continuing to buy back stock.
“First-quarter 2019 has seen $188 billion in U.S. stock buybacks, up 7.9% year-over-year,” the analysts wrote.
Aside from the Bank of America analysis, as Yahoo Finance reported Monday, Goldman Sachs analysts noted the lack of retail investor participation in 2019’s stock market rally as a bullish sign for stocks.
“History shows that retail sentiment tends to trail equity market performance,” the analysts said. “Assuming no imminent downturn in equity prices, the strong year-to-date return means retail investors will likely buy stocks in the second half.”
Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.
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