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S&P Heading to 1,750 by Years End According to JPMorgan

According to a tweet by MarketWatch, seen below, JPMorgan technicians have ratcheted up their year-end forecast for the S&P 500 to 1,715. In a research note on Thursday, Thomas Lee and Katherine Khor based their call on the fact that the average gain in the fifth year of a bull market is 19 percent. That would be 1,719 or about 3 percent above current levels. Here’s the tweet:

 

And a quote from the report:

“To be incrementally constructive on equities, investors ultimately have to expect stronger economic growth — at least compared to consensus expectations. In our recent conversations with investors, consensus seems to have difficulty imagining the U.S. economy accelerating given the headwinds out of Europe, China, high unemployment in the U.S. and the negative signals from the downturn in commodities. There are clues growth is likely strengthening. Consider the outperformance of semiconductors and transports year-to-date. Or the steepening of the 10-year vs. the 30-year yield curve. In our view, these historically have been reliable market indicators of improving growth.”

Can the bull be stopped? According to the report, any wavering on the part of the Federal Reserve would be a strong catalyst for a large-scale pullback. In addition, the market is currently long overdue for a correction and shows signs of getting tired. Investors should be careful on the long side as the risk/reward of being net long this market continues to degrade.

Looking for attractive sector plays? JPMorgan strategists suggest the technology sector which has underperformed the broader index. They point out that the sector trades at 13-times discount to the S&P. Healthcare and financials are also sectors of choice for value plays.

Disclosure: At the time of this writing, Tim Parker was net long the market.

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