JPMorgan still thinks the S&P 500 can rally another 12% this year as US consumer spending explodes for these 7 reasons

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JPMorgan still thinks the S&P 500 can rally another 12% this year as US consumer spending explodes for these 7 reasons
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  • Even as stocks sit near record highs, JPMorgan strategists see seven drivers lifting the market even further.
  • The bank reiterated its S&P 500 target of 4,400 on Friday, implying a 12% leap through the year.
  • Detailed below are the reasons the bank is still bullish, from strong household saving to a healthier labor market.
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Stocks leaped to record highs several times throughout the week. JPMorgan sees a handful of reasons even higher levels are in store.

Investors faced a fork in the road earlier this month. New stimulus backed by President Joe Biden and Democrats stands to supercharge the US economic recovery, but more conservative experts raised concerns the package could dangerously lift inflation. Traders largely ignored such fears, but stocks elevated valuations now pose a risk of their own.

Strategists led by Dubravko Lakos-Bujas maintain economic reopening and fresh fiscal support trump all. The team reiterated its S&P 500 target of 4,400 on Friday, implying a roughly 12% jump from current levels. The outlook already hinged on a strong consumer recovery, but several new factors bolstered the bank's call.

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Here are the seven reasons JPMorgan sees spending bouncing back and aiding the stock market's rally.

(1) Swift reopening

Tumbling COVID-19 case counts and continued vaccine rollouts place the US economy mere months away from reopening much of its economy, JPMorgan said. The strategists expect the pandemic to "effectively" end over the next 40 to 70 days.

(2) New stimulus

Roughly $30 trillion in stimulus has aided the global economy through the pandemic, and Democrats are charging on with efforts to approve another $1.9 trillion package. That deal can further accelerate the rebound, particularly by prioritizing employment, JPMorgan said.

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(3) Pent-up savings

US households are sitting on record cash reserves with savings totaling about $11 trillion, according to the bank. The unwinding of such funds can revive small businesses and spur new hiring.

(4) Ballooning wealth

Markets' health through the pandemic can further boost Americans' wealth. JPMorgan estimates rising values across home equity, pensions, and 401k plans will add up to $48 trillion in total net worth.

(5) Healthy household debt levels

Americans will also be coming out of the pandemic with robust balance sheets. The debt service ratio sits at a four-decade low, and delinquency rates for consumer loans are at historically low levels, JPMorgan said.

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(6) Improved job market

A falling unemployment rate, growing average work week, and possibly higher minimum wage will all contribute to a healthier labor market, the strategists said.

(7) Millennial bump

A record 5 million millennials will reach the inflection point of seeking homeownership, according to the team. Increased spending from this group will shift more savings into the economy.

Read more: JPMorgan says buy these 40 stocks set to soar as bond yields make a surprising jump higher

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