Fed decision: are U.S. stocks priced for perfection?

S&P 500 is pushing to the upside at writing after the U.S. Federal Reserve said it was leaving interest rates unchanged this month.

Bank of America raised its S&P 500 target today

The central bank did signal, though, that it will likely raise one more time before the end of this year.

Still, Savita Subramanian – a Bank of America analyst expects market breadth to improve moving forward. She raised her year-end target on S&P 500 index today to 4,600 that suggests another 4.0% upside from here.

Recession averted says the consensus economist … the net message of our five target indicators is bullish.

The benchmark index was seen around the 4,590 level in late July but has faltered ever since on rising oil prices and fears of weakness in the global economy.

Fed will likely cut rates only two times in 2024

On Thursday, the dot-plot signalled two rate cuts next year versus four it had projected in June that bolstered the higher for longer narrative. You can watch Chair Jerome Powell’s press conference here.

But BofA Securities’ Subramanian is convinced that artificial intelligence will materially improve productivity which will fuel earnings growth moving forward. Her research note reads:

Productivity, efficiency, less labour intensity AI is part of this, as are automation, right-sizing labour and wage incentives … productivity would likely drive the equity risk premium lower.

Last week, the Bureau of Labour Statistics said consumer prices in the United States were up 0.6% for the month in August versus 0.5% expected and 0.2% in July (source). S&P 500 is currently up more than 15% year-to-date.