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The most bullish case for the S&P 500 in 2021

Emily McCormick breaks down the most bullish calls on Wall Street ahead of 2021.

Video Transcript

- Earlier, Brian was outlining some of the risks to 2021 performance for us. But as we know, there is an awful lot of optimism out there. And our Emily McCormick is here with us now with one firm's bull case for stocks going into next year. Emily?

EMILY MCCORMICK: Well, Julie, of the dozen 2021 market outlooks from Wall Street firms that I've compiled so far, every single strategist believes that stocks are going to end next year higher than they are right now. Now that said, some firms are more bullish than others. And the most bullish firm so far is JP Morgan. Now that firm has set a price target of 4,400 for the S&P 500. They also see potential downside to 4,200, but upside to as high as 4,600.

Now that base case assumption, again 4,400, implies appreciation of about 18% for the S&P 500 from its recent closing high of a bit over 3,700 from last Thursday. Now for context, the median price target for the S&P 500 so far is 4,150 of those dozen strategists for 2021. And also for historical reference, JP Morgan did see the S&P 500 ending 2020 at 3,400 in its call last year. And that had been right around the median of analysts' estimates at that time. Now looking ahead to 2021, JP Morgan's upbeat assessment is really based on a handful of assumptions.

Some of the key ones are that central banks, including the Federal Reserve, will continue to tilt toward easy monetary policy, vaccine distribution will go smoothly, and that lawmakers in Washington will face a divided government scenario after those Georgia Senate runoffs in early January. So the outcome of those elections is still a possible downside risk here that JP Morgan had cited. But we will be getting some clarity on that within the next month or so.

Now a key quote here from JP Morgan really sums up their outlook, the analyst wrote, "The equity market is facing one of the best backdrops for sustained gains in years. After a prolonged period of elevated risks, global trade war, COVID-19 pandemic, US election uncertainty et cetera, the outlook is significantly clearing with the business cycle expanding and risks diminishing ." Now they also added that they expect a, "market nirvana scenario for equities with a melt-up especially happening in the first half of next year."

They said over the longer term gains may be a little bit less pronounced in the second half of next year, as the Federal Reserve potentially starts to give guidance around tapering for some of its highly accommodative policies during this crisis scenario here with the COVID-19 pandemic. But overall, a lot of bullishness here for Wall Street as a whole, and especially with JP Morgan. Julie?

- Thanks, Emily, appreciate it. I'm sure we will be talking much more about all of this as we get into next year and see how things pan out. Appreciate it.