PiCK

Summary

  • Major brokerages including Goldman Sachs and Morgan Stanley said they are maintaining year-end S&P 500 targets of 8,000.
  • Wall Street says a year-end rally remains possible because the AI investment cycle and corporate earnings remain solid despite worries over AI and data-center regulation.
  • JPMorgan called the drop in tech stocks tied to regulation concerns a buy-the-dip opportunity and highlighted historical gains in U.S. stocks after midterm elections.

Forecast Trend Report by Period

Major brokerages keep year-end S&P 500 targets at 8,000

U.S. midterm election adds to market unease

Tech shares sold on AI regulation concerns

Wall Street sees room for a Trump veto

Strong Big Tech earnings support bullish view

“It’s almost impossible to respond to this market. Most institutional clients are struggling.”

That is how Rich Privorotsky, Goldman Sachs’ head of European equity trading, described conditions ahead of the Nov. 2 U.S. midterm election. Stocks had already been under pressure before the vote, and markets were jolted again after ballots were counted on Nov. 4 as Democrats delivered a stronger-than-expected “blue wave.”

Even so, Wall Street has not abandoned calls for a year-end rally. The thinking is that corporate earnings and the artificial-intelligence investment cycle remain intact, and that once uncertainties including the midterm election begin to clear, investors who have sharply cut equity exposure could help drive a rebound by buying back in.

A market where selling fed more selling

In after-hours trading on Nov. 4, Nasdaq 100 futures fell as much as 2.8%. U.S. stock-index futures had opened higher after strong earnings from Advanced Micro Devices and Super Micro Computer. They then turned sharply lower as Democrats all but secured majorities in both the Senate and the House and also captured Senate seats and governorships in Republican strongholds including Texas and Georgia. Concerns that regulation tied to AI and data centers could be tightened shook sentiment toward technology shares again. Selling pressure eased later in the day, with futures recovering to near flat.

Markets had already been gripped by extreme volatility before the election. Bank of America said institutions, retail investors and hedge funds were all net sellers of U.S. stocks from Oct. 26 to Oct. 30. Losses deepened on crowded long positions in AI, semiconductors and hyperscalers, and funds that hit loss limits cut overall exposure indiscriminately, creating a cycle in which selling triggered more selling. Steno Research estimated that 105 portfolio managers at macro hedge funds were dismissed last month.

AI demand seen holding up despite the blue wave

Wall Street has stuck with its year-end rally calls. Privorotsky said a “painful year-end rally” may be taking shape. If a rebound starts after the election and other major events pass, lightly positioned investors may be forced to rebuild exposure late and buy back short positions, leaving them to chase the market higher.

Mike Wilson, Morgan Stanley’s chief investment officer, had recently called for a pullback. He said the election itself would remove uncertainty regardless of the outcome and viewed any sharp decline around the vote as a buying opportunity. Goldman Sachs and Morgan Stanley have maintained year-end S&P 500 targets of 8,000.

Analysts also argue that it is excessive to treat a Democratic victory as a sign that AI investment will stop. JPMorgan said that, given the possibility of a veto by President Donald Trump, legislation that would materially curb AI expansion would be difficult to enact. The bank viewed any regulation-driven selloff as a buy-the-dip opportunity. Bank of America also said tighter state-level data-center regulation would be more likely to slightly delay permitting and construction and raise development costs than to derail the investment cycle altogether.

The bullish case rests on corporate earnings and AI demand. Andrew Sheets, Morgan Stanley’s head of credit research, said companies with strong balance sheets, especially in technology, have not stopped investing despite higher interest rates and wider credit spreads. Funding for high-quality projects is still flowing.

Ed Yardeni, founder of Yardeni Research, maintained his year-end S&P 500 target of 7,900. He said earnings for S&P 500 companies rose 31% this year, while the index gained 10% and its forward price-to-earnings ratio contracted 14%. In his view, earnings will continue to support the stock market.

JPMorgan said U.S. stocks have risen an average of 5.4% over three months and 11.4% over six months after midterm elections. It also flagged key variables including a renewed war in Iran that could lift oil prices and the risk that tighter funding conditions spread even to high-quality projects.

Binn Nan-sae, Hankyung.com reporter [email protected]

Korea Economic Daily