US stocks have not peaked yet? O'Brien: S&P 500 index may rise to 7000 points!
Ari Wald of Oppenheimer believes that the US stock market has not yet peaked, and the S&P 500 index may rise to 7000 points. He pointed out that the market breadth is healthy, and the defensive sectors leading the gains may be a signal of catching up with poorly performing companies. Wald set a target price of 6000 points for the S&P 500 index in 2025, with a potential upside of 5%. If the bull market follows historical average levels, the S&P 500 index may reach 7000 points by the end of 2025
As the US stock market continues to hit new all-time highs, Ari Wald, Managing Director and Technical Analyst at Oppenheimer, believes that there are hardly any signs indicating that the market is about to peak.
In a report last weekend, he stated: "We continue to weigh seasonal headwinds, and we find the evidence of a market top not convincing."
He is encouraged by the fact that more than 60% of stocks on the New York Stock Exchange are trading above the 200-day moving average, which is a healthy sign of the market rally as it indicates that the market is being driven not just by a few large tech companies.
Wald stated: "We emphasize that market breadth remains constructive, and the leadership of defensive sectors may now represent a 'catch-up' by previously underperforming companies."
According to the charts, traders can buy into the S&P 500 index breaking to new highs last week, with a stop-loss set at 5650 points at the close.
The stop-loss point at 5650 points implies a potential downside space of only 1% for the S&P 500 index, while Wald's target price for the index in the first half of 2025 is 6000 points, indicating a potential upside space of 5%.
Wald's target price of 6000 points for the S&P 500 index is based on the median of past bull market cycles. He explained, "The S&P 500 index rose 64% in the 23 months from October 2022 to September 2024. Since 1932, the median increase in the 32-month bull market cycle is 73%." At the same time, the average increase in the 34-month bull market cycle is 102%.
If the current bull market follows the historical average level, US stocks could continue to rise until the end of 2025, with the S&P 500 index reaching around 7000 points by then.
The target price of 7000 points is consistent with Evercore ISI's bullish forecast, which stated in June that the AI boom could drive the stock market higher by 2025.
Wald stated that he is excited about the "correct" leaders, including the industrial sector, repeatedly hitting new highs under the overall market. "We believe that the cyclical high in the industrial sector confirms a complete bull market," he said.
Wald believes that the financial sector hitting historic highs is another positive signal for the overall stock market, while the tech sector may be preparing for the next significant rally.
He said: "In July, tech stocks fell from historical highs, both in absolute and relative terms. While the sector's momentum has slowed, we still believe that tech stocks are one of the strongest long-term pillars in the market." Finally, Wald emphasized that the healthcare sector is another area in the market showing resilience, although it lags behind other sectors.
While the healthcare sector is breaking historical highs, it is falling to multi-year lows relative to the S&P 500 index.
Wald said, "We believe that the divergence between the absolute trend and relative trend of healthcare indicates that the breadth of the market is expanding, with even lagging industries rebounding."
According to the report, similar situations have also occurred in the communication services and materials industries