Dow Jones Industrial Average
dropped more than 700 points on Monday, it didn’t stop bullish strategists from going
Instead, they became more optimistic and increased their year-end
4400 to 4600 target – before Tuesday’s big rally.
What did they see? JPMorgan’s Dubravko Lakos-Bujas believes improving labor market fundamentals coupled with accommodative monetary policy and record household savings will continue to boost the stock market, even as many market watchers predict more downward pressure.
It all comes down to revenue. Lakos-Bujas believes the consensus estimates remain conservative. That means they will continue to experience positive revisions until 2023. As a result, he has increased his estimate of earnings per share of the S&P 500 by another $5 to $230 for 2022 — above consensus estimates of $214. Lakos-Bujas also believes profit margin estimates are understated. . Current consensus margin estimates assume margins will fall 0.9%, while Lakos-Bujas suggests companies can pass costs on to consumers to protect their profits.
Larger buybacks in the coming quarters will further boost returns. For example, the Federal Reserve has allowed banks to repurchase shares after limiting buybacks and dividends to save capital during the pandemic crisis. Already announced repurchase announcements have surpassed the 2020 level with $431 billion in announced repurchases to date, compared to $307 billion in the same period last year. Lakos-Bujas sees gross buybacks of more than $850 billion by the end of the year, thanks to record profit margins and cheaper financing.
The timing of Lakos-Bujas could not have been better. The S&P 500 ended up 1.5% on Tuesday, while the Dow Jones Industrial Average gained 1.6%.
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