Wall Street at a crossroads

If you’re torn about how to navigate markets these days, you’re not alone: Even Wall Street pros are divided about what happens next.

The bulls

Analysts at JPMorgan Chase’s trading desk see the glass half full. The group, led by Global Head of Market Intelligence Andrew Tyler, just shifted their market outlook from tactically neutral to outright bullish, raising the end-of-year target for the S&P 500 from 7,800 to 8,000.

“We now see a more favorable setup for markets as bond yields find a level and oil prices are likely to trend lower, albeit in a choppy fashion,” Tyler wrote. It’s worth listening to him: Tyler & Co. turned cautious back in June just ahead of a volatile summer for markets, accurately forecasting a selloff in AI stocks.

Here’s why JPMorgan’s feeling optimistic:

• In the near term, catalysts like the jobs report on Friday, plus the next CPI report and Fed decision in October, could juice stocks heading into the final quarter of the year.
• Looking ahead, strong earnings growth combined with lower macroeconomic volatility will boost markets across the board.
• As for specifics, Tyler says the AI trade has regained momentum and he loves owning tech, particularly semiconductor stocks. He also likes banks, which will profit from a steeper yield curve.

The bears

But just down Wall Street, Morgan Stanley isn’t so positive: Chief Investment Officer Mike Wilson recently warned that a market correction could be right around the corner. He noted that ongoing volatility due to rising oil prices and bond yields, coupled with election-season volatility, could send the S&P 500 tumbling to 7,100 in the near term. The firm’s caution comes right as we head into October, the most volatile month for the market.

It’s not all doom and gloom, however: Wilson made it clear that he isn’t saying investors should sell out of fear. “We’re rotating as opposed to reducing our overall equity exposure,” he told Bloomberg Television earlier this month. “I don’t think people should be reducing their equity exposure.”

For now, Wilson recommends investors focus on quality stocks with strong free cash flows. And he still believes that near-term volatility will eventually recede, while strong earnings growth will propel markets higher toward the end of the year.

So, what now?

Wall Street’s consensus calls for the S&P 500 to rise to 7,870 before the year ends, or about 2% higher from today’s close. If you ask JPMorgan, that seems like a tantalizingly easy target—but, as Morgan Stanley warned, the path to reaching it may be a bumpy one.—MR