Investment bank Piper Sandler is turning more bullish on the US stock market, citing recent technical indicators and a broadening rally.
"Based on the weight of the recent technical evidence," Piper Sandler analysts wrote, "we are realigning our outlook and raising our year-end S&P 500 price objective from 5,050 to 5,800."
The analysts point to their "26-Week New Highs" and "40-week Technique" indicators, which recently switched to "buy" signals, reflecting improved market breadth.
"Trust the Thrust," the investment bank wrote, emphasizing their confidence in the current uptrend.
According to Piper Sandler, the recent outperformance of small and mid-cap stocks (SMID-caps) is a positive sign. "The recent 'catch-up' trade by SMID-caps suggests that equities markets have started to broaden beyond just the Technology sector," they noted.
They note that historically, during election years, SMID-caps tend to outperform in the second half of the year, adding to their bullish sentiment.
While acknowledging last week's volatility, Piper Sandler downplays its significance. They point to elevated readings in the American Association of Individual Investors (AAII) Sentiment Survey, indicating investor optimism.
"Our research has shown that high readings in the bullish percent data have led to incrementally higher returns," they explained.
Futhermore, financials are seen as a bright spot by Piper Sandler. "Financials have shown the most constructive price action," they wrote, highlighting a strong rally across various financial sub-sectors. "They have led the recent surge higher in the market and have the most groups participating in the rally."
The firm anticipates these leaders will experience only modest pullbacks before continuing their uptrend.
Overall, Piper Sandler's revised outlook is based on a combination of technical indicators and a belief in a broadening market rally. While acknowledging potential risks, they advise investors to "realign" their thinking and be prepared to buy any pullbacks.