Deutsche Bank has revised its year-end target for the benchmark S&P 500 index to 5,750 points from 5,500, attributing the increase to rising stock buybacks, robust corporate earnings, and strong inflows driven by heightened risk appetite.
“We see S&P 500 earnings growth continuing to run robustly in the low double digits, in line with typical growth rates outside of recessions,” Deutsche Bank strategists noted in a report dated September 12.
The new target implies a 2.75% upside from the S&P 500’s closing level of 5,595.76 on Thursday. Expectations of U.S. rate cuts this year and the excitement surrounding artificial intelligence (AI) have propelled the index, prompting several brokerages to raise their annual targets, with some forecasting the benchmark could reach as high as 6,000 by the end of 2024.
In May, Deutsche Bank had already increased its year-end target for the S&P 500 to 5,500, citing strong corporate earnings as a key support for equity valuations. The brokerage observed that the recent stock pullback in August, driven by concerns over a weakening labour market and a de-rating of technology stocks, appears to have stabilized, with market positioning aligning once again with earnings growth.
Concerns about a cooling labour market have been alleviated, with August payroll growth remaining steady on a year-to-date basis. Factors expected to bolster the market include a shift from “de-stocking” to “re-stocking,” increased capital expenditure outside the tech sector, a broader manufacturing recovery, and rising consumer confidence, according to strategists led by Binky Chadha, Deutsche Bank’s chief U.S. equity and global strategist.
The brokerage anticipates share buybacks to rise to approximately $1.2 trillion next year, up from the current $1 trillion, as they keep pace with earnings. Equity inflows have been strong over the past four months, defying typical seasonal trends, which Deutsche Bank believes will enhance prospective corporate earnings and equity returns.
Deutsche Bank also reaffirmed its earnings per share (EPS) forecast for S&P 500 companies at $258 for 2024 and $285 for 2025.