CFRA's Sam Stovall on why he's raising his S&P 500 12-month price target by 8%

Joining us right now is Sam Stovall. He is Chief Investment Strategist at CFRA. And Sam, you’re feeling a little better about the markets. I think just over the last week or so you’re actually raising your 12 month price target for the S&P 500 by more than 8%. I think now you’re looking for a 12 month price target of 5610 that’s up from 50 to 50. What, what gives you that confidence? Good morning, Becky. Well First off, people might think of the 5610 number and say, Gee, what mushrooms have he been chewing on? But actually as you said, it really represents about an 8% advance. And I think what is encouraging is we are continuing to see earnings come in better than expected not only for 2024 but also now a near 15% projected advance for 2025. We’re seeing the economy be show trends that we could be seeing in come down a bit further. And also I think this relief rally has been continuing triggered by Fed chair pals comments that a rate hike is highly unlikely. So I think this bull market is maintaining its upward trajectory and will do so over the coming 12 months. What would change your mind if we saw an increase in inflation or something that picked up again? Because we have been seeing some percolating signs. Wages 3 to 4% is what CEO’s are anticipating playing. There’s an expectation that you could see rent prices pick up again. If you did see increases in inflation levels, either CPI, PPI somewhere along the way, would that change your mind on this or earnings are strong enough to recover from any of that? Well, our expectation right now is that we are going to continue to see inflation post downward moves over the next several quarters. Certainly we could end up seeing some backing and filling along the way because we are going to be dealing with tougher comparisons on a year over year basis. But we think as we move into 2025, certainly inflation will be sliding much closer to the Fed target. Certainly if our assumptions change, then so too will the expectation for this bull market move. I like to look at Target prices more as a weather vane than a laser beam. So it really gives an idea of what the overall trajectory is likely to be rather than attempting to hit the exact concluding point. A few weeks ago though, we were looking at a pullback of better than 5% for the major averages. At that point, were you thinking, OK, it’s it’s fair to be quite a bit lower back at 52 and change 5200 and change absolutely. This could switch pretty quickly on a dime if the market changes its mind. There’s, there’s been some disappointment I think with some of the guidance that’s been given in these earnings calls and some of the stocks have reflected that. Well, this is likely to be the 48th quarter out of the last 50 in which actual results have exceeded end of quarter estimates. So I would say in general with 10 of the 11 sectors now posting better than anticipated results that on the whole the earnings have come in better than anticipated. Yes, I originally thought that we probably could challenge the 4800 level on the S&P. We posted our 11th strongest first quarter gain since World War Two this year. And traditionally we see declines of about 8 plus percent following an advance like that because we’re down only 5 1/2% and history would say we’re likely to advance another 5 to 10%. After recuperating all that we lost in this sell off off, we probably could experience another five plus percent decline sometime this year. But history says if we record that low before July 31, in all cases we have posted a positive year and the average gain has been in the upper teens. So I’m going with the probabilities offered by history. So Sam, 5610 is your 12 month price target. Where do you think it stands at the end of the year? Well, you could say 5440 or fight, so something along those lines. So just looking at a simple linear month end number, it would be about the the 54305440 level, so about a 4% gain from where we are right now, which really is not expecting very much.