BMO Capital Markets Raises S&P 500 and S&P/TSX Price Targets for 2024

BMO Capital Markets has adjusted its price targets for both the S&P 500 and the S&P/TSX, indicating a more optimistic outlook for the markets in 2024. Initially, the investment bank had set the S&P 500's year-end target at $5,100, a conservative estimate reflecting concerns about the rapid equity performance following the market's rebound in October 2023. However, recent developments and stronger than anticipated market momentum have led to a revision of these views.

The firm has now acknowledged underestimating the strength of the market, influenced by aligning investor expectations and favorable Federal Reserve policies. This alignment has bolstered BMO's confidence, prompting them to turn bullish on US equities and revise their expectations upward for the Canadian market as well.

On Thursday, BMO raised its S&P/TSX price target to 24,500 from 23,500, a 4% increase. This adjustment is based on multiple indicators suggesting that sentiment and revision trends, which had previously bottomed out, are now showing signs of improvement. This is expected to be a key driver for valuation expansion as the year progresses.

Despite the positive adjustment in price targets, BMO has chosen not to alter its 2024 earnings per share (EPS) targets at this time. The firm believes the current revision trends will likely support the 2025 EPS more significantly. Consequently, the 2024 implied price-to-earnings (P/E) ratio is set to rise to 16.3x from 15.7x, remaining below the long-term average multiple of 17x.

Highlighting sector performance, BMO notes that unlike last year, when the big three sectors underperformed, two of these sectors are now markedly outperforming. The performance is broadening with a renewed focus on fundamentals, indicating a potential for strong rebounds and a robust catch-up trade, particularly in Financials and other sectors outside the big three, in the latter half of the year. This sectoral resurgence underscores the broader market recovery and suggests a potentially lucrative period ahead for investors.

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