Wall Street Raises S&P 500 Targets in Succession; JPMorgan Warns of 'Flash Crash'

[Financial News]  

Wall Street is growing more optimistic about U.S. stocks this year.
According to Investopedia, JPMorgan Chase and BCA Research raised their year-end targets for the S&P 500 Index on the 24th (local time).
They cited expectations that corporate earnings will show an "unusual" improvement.
JPMorgan, however, warned that so-called flash crashes, where stock prices plunge in an instant and then rebound to recover previous levels, could become more frequent.

JPMorgan raised its target from 7,600 to 7,800, while BCA lifted its forecast from 7,700 to 8,100. JPMorgan's 7,800 target implies about 6% upside from the close on the 23rd, while BCA's 8,100 target is about 10% higher.
JPMorgan said, "We are moving toward our 'blue sky' scenario," and added, "We are raising our year-end S&P 500 target to 7,800."
Both BCA and JPMorgan pointed to "unusual" earnings improvement following the end of the Iran war as a reason for their optimism.
According to JPMorgan, as talks on ending the war between the United States and Iran progress, Wall Street analysts have raised their S&P 500 earnings forecasts for this year and next by about 10% from the start of the year. JPMorgan noted that "this kind of positive revision is unusual and is typically seen only after some kind of shock or recession."
BCA also said first-quarter earnings for S&P 500 companies were stronger than its own forecast and showed broad-based improvement. It added that it was optimistic earnings growth would remain strong as "the U.S. economy shifts into expansion."

Large-scale Artificial Intelligence (AI) data center investments by so-called hyperscalers that provide cloud services, including Alphabet Inc., Microsoft (MS), Amazon.com, Inc., Meta Platforms Inc. and Oracle Corporation, are expected to be a key driver of earnings growth for technology stocks.
These hyperscalers initially expected capital expenditure growth of 40% this year, but later announced additional spending increases. The market now expects their capital expenditure growth to exceed 75% this year.
Such investments are already translating into revenue and earnings growth across a wide range of industries, from semiconductor companies such as Micron, which sits in the data center supply chain, to construction equipment maker Caterpillar Inc.
JPMorgan also said it was positive that consumers and the labor market remained resilient, and that the impact of the oil-price shock from the Iran war on corporate earnings was relatively limited, indicating that the U.S. economy continues to grow healthily.

Still, JPMorgan warned that the road to 7,800 by year-end would not be smooth.
It first pointed to rising expectations for the second-quarter earnings season, which begins next month, after unexpectedly strong corporate results in the first quarter.
The increase in momentum stocks such as semiconductors, including system and memory chips, has heightened the risk of a sudden reversal, or a flash crash.
Semiconductor stocks around the world suddenly tumbled on the 23rd, underscoring how quickly the market can turn.
JPMorgan warned that speculative momentum trading in these secondary AI stocks is so extreme that the market is "highly vulnerable to reversals and likely to face flash crashes repeatedly."
A flash crash refers to an asset price plunging sharply in an instant and then rebounding just as quickly. The collapse and recovery usually occur within minutes, and at most within an hour. There is typically no clear negative catalyst. The main causes are believed to be high-frequency trading (HFT) and algorithmic trading.
Meanwhile, JPMorgan forecast that the Federal Reserve System would keep interest rates unchanged this year but shift to rate hikes next year.

dympna@fnnews.com Song Kyung-jae Reporter