BMO raises S&P 500 outlook, says 'all the doom and gloom' has yet to happen

Published Tue, Jun 6 202310:01 AM EDTUpdated Tue, Jun 6 202312:40 PM EDT

The stock market's strength in 2023 is giving BMO Capital Markets reason to turn more bullish on the setup going forward. Chief investment strategist Brian Belski lifted his target for the S & P 500 to 4,550 from 4,300 as overhanging worries from 2022 ease and the market shows signs of resilience. "Through five months of the year, it has become increasingly clear to us that stock market resilience is here to stay," he wrote in a Monday note to clients. "Admittedly we entered the year more cautious than we have been in the past given the host of uncertainties the market faced to begin 2023, but it seems that all the doom and gloom that many others were prognosticating has yet [to] come to fruition." The new target represents about 6.5% upside from Monday's close and puts Belski well above the average and median targets on Wall Street, and second highest behind CFRA's Sam Stovall. So far this year, the broad index is up 11.3%, boosted by gains from technology giants as investors bet on artificial intelligence. Heading into 2023, many investors expected the Federal Reserve to continue its aggressive hiking cycle until it tipped the economy into a recession. But even after a slew of significant rate increases, signs point to easing inflation and a strong and resilient labor market, Belski said. .SPX YTD mountain S & P 500's 2023 performance "In other words, we believe the anticipated recipe for disaster is simply not present," he wrote. "So, from our perspective, all the worries that damaged 2022 market performance are slowly beginning to subside." Markets aren't out of the woods just yet. Belski expects earnings growth to struggle in 2023 against this backdrop before reaccelerating in 2024. Price momentum should continue, but at a slower rate through year-end. Along with the target hike for the benchmark index, Belski shifted two sector stances, moving from market weight to overweight on technology, while downgrading health care to market weight from overweight. "From our perspective, the AI hype surrounding the Tech sector is real and likely to propel future growth for many stocks within the space," he wrote. "So, despite an extremely strong YTD sector performance, we believe the momentum, even if it slows a bit, is likely [to] persist for the foreseeable future." He cited easing Covid-19 tailwinds, along with struggling performance and earnings growth for the sentiment shift in health care. He recommended investors take a "highly selective" and barbell approach when stock picking in the sector. — CNBC's Michael Bloom contributed reporting.