ASX set for muted open amid US trade clouds
In a note, Kostin said the S&P 500 recently climbed to a new record and further upside would be consistent with the historical playbook following the resumption of Federal Reserve cutting cycles.
'Our new 3- and 12-month returns forecasts are +3 per cent and +11 per cent, indicating S&P 500 levels of 6400 and 6900 (previously 5900 and 6500). Our 6-month return forecast, corresponding with year-end 2025, is +6 per cent to 6600 (previously 6100). Our year-end S&P 500 forecast ranks at the upper end of the distribution of strategist estimates.'
Kostin also said earlier and deeper Fed easing and lower Treasury yields than we previously expected, the continued fundamental strength of the largest stocks, and investors' willingness to look through likely near-term earnings weakness support our revised S&P 500 forward price-to-earnings forecast of 22 times (from 20.4 times).
'Our economists' revised Fed forecast calls for three sequential 25 basis point cuts this year, beginning in September, followed by an additional two quarterly cuts in 2026. As a result, our rates strategists expect the nominal 10-year US Treasury yield to end 2025 at 4.2 per cent (vs. 4.5 per cent previously).
'In our macro valuation model, every 50 bp decline in real yields is associated with a roughly 3 per cent increase in S&P 500 forward P/E, all else equal. In addition to the improved outlook for interest rates, the strength of first-quarter earnings results boosted our confidence that the largest stocks will sustain current investor expectations for their long-term growth for at least the next few quarters, helping support valuation for the aggregate S&P 500 index.'
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