Evercore ISI raises market outlook and gives 'momentum masters' stocks to play it

Published Mon, Jun 5 202311:00 AM EDTUpdated Mon, Jun 5 20232:43 PM EDT

The S & P 500 could see more upside ahead after breaking out above a key level as artificial intelligence drums up market excitement, according to Evercore ISI. Julian Emanuel, Evercore ISI senior managing director, raised his target for the broad index to 4,450 from 4,150. His new target implies the stock market could rally 3.9% from where it finished last week. On the other hand, Emanuel's prior target meant the index would need to give up about 3.1% through the rest of 2023. That puts Emanuel above the median and average S & P 500 targets on Wall Street after previously being right around them. And that target could be hit by early July as opposed to year-end, he said. If it is reached early, he'll be watching for small-cap participation, weekly jobless claims and the relative path of the CBOE Volatility Index , Wall Street's fear gauge, to determine where the S & P 500 will move next. .SPX YTD mountain The S & P 500's 2023 The market looks similar to 1999 as investors focus on AI as the "next big thing." But he said investors should be ready to keep their emotions in check as "it is likely to be quite a roller coaster ride – exciting at times, terrifying at others." "Forgive us for thinking this is 1999," he said in a note to clients. "Better yet, join us in thinking this way." The S & P 500's recent breakout above 4,200 points is a sign that AI-driven momentum first seen in the technology-heavy Nasdaq Composite is now apparent in the S & P 500. He noted a 20.8-times valuation is above the midpoint seen over the last several decades, but notably below the "scary" extremes reached during the dot-com bubble. 'Momentum masters' He called this investing landscape a "momentum market" that requires more risk management and probabilistic thinking. A momentum-focused market can be difficult to play because valuations become less important, he said, while price action matters more. The American Association of Individual Investors' sentiment survey is worth watching as market participants can get more emotional, he said. With this landscape in mind, Emanuel has some "momentum masters" he recommends buying. These are medium- and near-term leaders in the Russell 1000 . They all are expected to be profitable in earnings for 2023, have annual growth in the top half of the index and see upward year-to-date revision. They are also defensively positioned with short interest or options skewing in the top third of one-year ranges. Here's 10 that made the list: Google parent Alphabet is considered a momentum master. The Big Tech stock has rallied on AI excitement, with shares hitting their highest point since August — and has since exceeded those levels —after the company announced plans to bring AI into its search product at its developer conference last month. Shares have jumped about 41% this year, but are still under where they finished 2021 with the stock still yet to erase last year's sell-off. Still, the stock has outperformed both the broad S & P 500 and tech-heavy Nasdaq this year. Data stock Zscaler , which is up about 27% so far this year, also made the list. On Thursday, the company reported better-than expected earnings coming in at 48 cents per share, excluding items, against a 42-cent estimate from Refinitiv. Zscaler also provided strong guidance. Outside of technology, First Citizens BancShares made the cut. The bank acquired $72 billion in assets from Silicon Valley Bank, which was the biggest bank failure since the global financial crisis when it closed in March and triggered a broader bank crisis earlier this year . The assets were sold at a discount in a deal sweetened by the Federal Deposit Insurance Corporation. Shares have surged more than 70% this year as investors cheered the deal. The SPDR S & P Bank ETF (KBE) , by comparison, has slid about 19% this year, while its counterpart focused on regional banks, the SPDR Regional Banking ETF (KRE) , is off about 28%. — CNBC's Michael Bloom contributed to this report.