Strategists at J.P. Morgan have raised their year-end price target for the S&P 500 to 1,775 from 1,715, citing factors like improving economic data from Europe.
The target hike, announced in a client note on Thursday, comes after the benchmark index traded within about 1% of the bank’s earlier target of 1,715 during this past week — such as on Tuesday, when the S&P 500 touched a record intraday high of 1,698.78, according to FactSet data.
With the S&P 500 closing at 1,690.25 on Thursday, J.P. Morgan’s new target implies an advance of 5% for the rest of the year, rather than the 1.5% gain from 1,690.25 implied by the bank’s earlier target of 1,715.
“With both US and Europe expected to see better growth in 2H, we believe the Street will be in a position to raise 2014E EPS. We are raising 2014E EPS to $120 (vs $117) and also raising our YE 2013E S&P 500 Target to 1775 (up 3.5% vs prior 1715),” said the note, put out by Thomas J. Lee, Joseph Abboud and Katherine C. Khor from J.P. Morgan’s North American Equity Research division.
The strategists see “pent-up demand in U.S. and to an extent in Europe,” they wrote. They also note that corporate bonds have bounced back from their recent selloff, which is supportive for risky assets, and argue that “equities need to re-rate higher vs corporate bonds.”
The primary risks to their new targets are China and the Fed, namely the potential for “a faster deceleration in GDP growth” for the No. 2 economy and “how equity markets will handle the start of tapering.”
The J.P. Morgan note also gives ideas for stock pickers in response to “more than a few clients” who have “expressed interest in finding companies with exposure to Europe and less exposure to EM [emerging markets].” The ideas include Priceline.com, eBay, Gilead Sciences , LyondellBasell and Molson Coors Brewing T.