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Easing political uncertainty, hopes for a new coronavirus aid relief package and now a promising vaccine candidate are all setting up a solid foundation for further stock-market gains in the next few years, market experts say.
Analysts at JP Morgan tweaked their Wall Street forecasts and projected the broad-based S&P 500 SPX, +1.17% would hit 4,000 early next year, and even rise as high as 4,500 at the end of 2021.
“The outlook is significantly clearing up, especially with news of a highly effective COVID-19 vaccine,” said JPMorgan Chase & Co. analysts led by Dubravko Lakos-Bujas, in a Monday note.
The S&P 500 shot up 2.7% on Monday, surpassing the intraday record of 3,588.11 set on September.
The sharp gains followed after Pfizer PFE, +7.61% and BioNTech BNTX, +13.91% said their COVID-19 vaccine candidate was 90% effective based on an early analysis of results.
See: Why investors should ‘let the dust settle’ as Dow jumps 1,300 points on Pfizer vaccine news
Lakos-Bujas set out a long list of reasons why the market’s rally was unlikely to end soon. Those include what he described as a divided government, supportive central-bank policy, and a faster-than-expected recovery in the labor market and corporate earnings.
This bullish backdrop could present a “breakout point” for the much awaited rotation from shares of companies with high earnings growth, and therefore less sensitive to the ups and downs of the economic cycle, to growth-sensitive value stocks.
The stock market’s march higher isn’t without obstacles, however.
One risk to the outlook, said JP Morgan, was the January runoff election for two Senate seats ended up going in the Democratic Party’s favor, taking back control of the upper chamber of Congress.
This scenario would unlock fears that a Democratic sweep over the White House and Congress could raise the risk of tax hikes and increased regulatory changes down the road.
