(News Bulletin 247) – Piper Sandler has decided to no longer provide a price target on the American index, judging that there is no longer any great added value for its clients. A previous strategist, according to Bloomberg, had thrown in the towel.

It is always a perilous exercise but one which allows us to have an idea of ​​the optimism of Wall Street financial intermediaries: predicting the evolution of the S&P 500, the flagship index of the New York market.

According to a Bank of America note dated late June, sell-side analysts (who produce advice for external clients) have raised their average forecast for the S&P 500’s level at the end of December to 5,300 points from 4,800 six months earlier. That’s still below the S&P 500’s current price of 5,453 points.

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So strategists were caught off guard by the rise in US indices, which is not unusual. But does giving a price target on the market as a whole still make sense?

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Piper Sandler Hands Over the Apron

Piper Sandler has decided to throw in the towel. The venerable investment bank founded in 1895 has decided to no longer set a price target on the S&P 500.

In an interview with Yahoo Finance, Michael Kantrowitz, the bank’s co-head of investment strategy, explained in detail the choice of Piper Sandler.

“Over the last few months, as I’ve tried to think about raising my target again, I haven’t felt very comfortable saying, in all intellectual honesty, that I have a very compelling view of where the S&P 500 is going,” he said. “I also didn’t think it added real value to our institutional investor clients,” he added.

The strategist also explains that the interest is not so much in knowing whether the market as a whole is progressing as in positioning oneself on the stocks that can support or penalize it. “There is less and less value in talking about the market because many stocks do not behave like the market,” he emphasizes.

Historically, in a generally bullish market phase, small and mid caps should perform well or even outperform. However, the Russell 2000, the benchmark index for this category, is significantly underperforming the S&P 500 (+10.8% versus +14.4%).

However, it should be noted that the Russell 2000 has made up for a lot of ground in recent weeks, thanks to a rotation on Wall Street that has benefited small caps at the expense of tech. Disappointing results from Tesla and Alphabet this week have led to this movement continuing.

A significant market concentration

This signal highlights an important point: the American market is concentrated on a small number of very large values. In a note published at the beginning of July, Pictet AM thus underlined that “the ten largest companies in the S&P 500, which represent 32.61% of the index’s weighting, contribute to 74% of the performance of the American stock market in 2024”.

This phenomenon is obviously linked to the performance of American “big tech”, Nvidia (+130% over the whole of 2024), Meta (+31%), Amazon (+20%) and Alphabet (+20%) in the lead, and to the rise of artificial intelligence (AI).

“Excluding AI stocks, the market is down 2% since the beginning of March. Nothing very surprising compared to what we have been saying over the last few months,” Pictet AM explained at the beginning of July.

Because of this high concentration, predicting the direction of the market as a whole is obviously less relevant.

Moreover, while Piper Sandler is an exceptional case, the bank is not totally isolated. Bloomberg cites Tow Dwyer, who recently gave up his role as strategist at the investment bank Canaccord Genuity, and had previously decided to no longer give a price target on the S&P 500. For him, it was impossible to make a forecast when a handful of stocks have such an influence on the index, the agency reports.

As we explained in a previous article, this concentration of the American market on a few titles, while it may raise eyebrows, is not dangerous in absolute terms.

“Is this a risk? Not necessarily. In periods of industrial revolution, such concentration often occurs and can last for several years. This is not a problem as long as profits are there and companies have high cash levels,” Pictet AM explained.