The S&P 500 has entered a bull market, but Wall Street can’t decide if it’s real

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  • The S&P 500 has pushed into a new bull market, but experts are torn over whether the rally can last.
  • AI hype and robust earnings from US companies have driven the upturn in 2023.
  • But it comes as experts warn the US is close to tipping into a recession.

The S&P 500 is now up more than 20% from its October lows, a technical signal that it’s officially in a new bull market — but Wall Street remains divided on whether the current rally is really the start of another bull run, or a head fake before stocks inevitably crash again.

The benchmark has been largely boosted by the rise in mega-cap tech stocks, thanks to Wall Street’s enthusiasm for artificial intelligence. Analysts say AI could boost productivity, profits and boost stocks for years to come, shrugging off worries for now that a dot-com bubble is forming in the sector.

Experts remain worried about a looming recession, with alarms coming from all sorts of economic indicators, from falling paperboard demand to falling motorhome sales. The U.S. now has a 70% chance of tipping into recession by May 2024, according to the latest projections from the New York Fed — an event that could easily throw the stock rally to the wayside.

Here’s what Wall Street commentators have to say about whether the current rally in stocks still has room to run.

Screenshot via Bloomberg TV

David Rosenberg, founder of Rosenberg Research

The rally in stocks is not supported by fundamentals, and it won’t last long, as the US is virtually guaranteed to enter a recession this year, according to top economist David Rosenberg.

That’s because the S&P 500’s strong performance this year is at odds with economic data, Rosenberg said. Jobless claims, for example, rose another 1,000 to 262,000 in the past week, holding to the highest level since October 2021.

Meanwhile, rising interest rates over the past year have tightened financial conditions, making recession more likely. And although central bankers kept interest rates steady at their policy meeting on Wednesday, officials hinted that more hikes could be expected later this year as inflation remains a threat.

“This market continues to be little more than short-term momentum,” Rosenberg said in a recent note. “You can believe the headlines, or you can believe the leading indicators – which suggest that we actually have a 99.15% chance of an official NBER-defined recession,” he said.

Steve Marcus/Reuters

Jeremy Siegel, economist and professor of finance from the Wharton School

Investors can expect the rally in stocks to end as the U.S. enters a mild recession this year, according to top economist Jeremy Siegel.

Siegel has been a vocal critic of Fed policy over the past year, urging central bankers to pull back on rate hikes to avoid causing a recession.

Although he previously predicted a 15% gain for the S&P 500, he has become more bearish on the market as recession odds increase. Stocks are likely to slip as the U.S. is headed for a low-level recession this year, he predicted, although stocks are unlikely to fall back to last October’s lows.

“This latest bull market is no guarantee that we are out of the woods from the downturn,” Siegel said in his weekly commentary to WisdomTree on Monday. “I’m still cautious and I don’t think we have the start of a major upturn here,” he added.


Mike Wilson, Morgan Stanley CIO and Chief Equity Strategist

The current rally in stocks is a fluke, and the bear market is still alive. More importantly, the company’s earnings are set to fall through the rest of this year, which would trigger a sell-off, according to Morgan Stanley’s chief equity strategist Mike Wilson.

Wilson has been warning of a steep earnings recession for months. Companies are still battling inflationary pressures and tighter economic conditions, which could cut profits by as much as 16%, he predicted.

“While we believe AI is real and likely to lead to some significant efficiency gains that help fight inflation, it is unlikely to prevent the earnings recession we expect for this year,” Wilson said in a recent note.

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Tom Lee, head of research at Fundstrat

Fundstrat’s Tom Lee, among the first to call the bull market in stocks, believes the rally has room to extend beyond the technology sector.

In Lee’s view, the economy is actually on the brink of an expansion, not a recession. Inflation is showing signs of abating, and companies are actually heading for a boom in profitability.

“Instead of a recession unfolding, the economy appears to be slipping into an expansion,” he said in a recent interview with CNBC. “I don’t think stocks are expanding. I think the FAANGS did the heavy lifting, and I think if we slide into an expansion, a lot of other groups are going to participate,” he added later.

Brendan McDermid/Reuters

Goldman Sachs

The hype for AI is real and could lead the S&P 500 to climb higher this year, Goldman Sachs said.

The investment bank touted the potential benefits of artificial intelligence, as firms that adopted the technology could see an increase in productivity and thus an increase in revenue. That could take the S&P 500 as much as 14% higher in the coming years, strategists said.

And while AI excitement has primarily boosted tech stocks, the rally could spill over into other sectors, as previous episodes of narrow market breadth have translated into a larger percentage of winning stocks in the S&P 500 overall.

The bank has also lowered its estimate that the recession will hit the economy this year to 25%, down from a 35% chance predicted earlier this year.

The S&P 500 could end the year at 4,500, strategists predicted, suggesting upside of about 5% from today’s levels and a gain of about 17% for the full year.

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