A record year for U.S. stocks is only going to get better as bold predictions come true, according to a bullish market veteran.
James DeMaat has diagnosed all kinds of markets during his nearly 40 years of experience, including more than 30 years at Main Street Research, the multi-billion dollar company he founded.
In the mind of an investment manager, few market conditions are more exciting than the start of a bull market. Conversely, missing out on such a rally can be completely devastating.
“The beginnings of bull markets have really surprising trajectories,” DeMaat said in a recent interview, “and if you look back at those trajectories, the beginnings of the bull markets of, say, the ’90s and early 2000s were really surprising for the first year and a half to two years.”
DeMaat predicted that a number of factors, including investors’ fears of being left behind, would propel the S&P 500 to 6,000 by the end of the year. In his “rocket launch” analogy, the so-called “driving forces” are excess cash levels, cautious earnings forecasts and upcoming interest rate cuts.
The veteran investment chief’s forecast is at odds with most of Wall Street, where top strategists have recently suggested stock indexes should take a breather later this year.
Market skeptics have argued for months, even years, that stocks are stagnating because too much good news has already been priced in. But Mr. DeMaat argues that such warnings ring hollow.
“When people say, ‘Oh, it’s priced in now,’ remember, they said that in January, they said that in March, and they’re saying it again,” DeMaat said. “They keep saying it, but I think they’ve lost track. There’s still that trajectory and the fuel to keep it going. So we get to $6,000. I think the people who are saying, ‘Oh, it’s priced in now,’ at this point are the same people who have been saying that for the past few quarters.”
Despite long-term risks, stocks could rise for years
Mr. DeMaat said that better-than-expected earnings (including a 10% increase next year) and two interest rate cuts by the Federal Reserve would see money flowing into stocks from the sidelines.
“People who have cash are feeling a lot of FOMO right now,” DeMaat said. “They’re dying to put those assets to work.”
But the investment chief warned that the S&P 500’s journey to 6,000 will be a tricky one. After this massive rally, he said, he expects a short-term, relatively modest pullback of 5% to 7% later this year.
“I would be very surprised if we don’t see a small correction between now and the end of the year,” DeMaat said. “So there will be an opportunity for investors to buy into the weakness between now and the end of the year. I don’t know exactly when that will be, but a small pullback is on the horizon.”
He thinks if the S&P 500 hits DeMaat’s year-end target, that will probably be a pause.
“We think we have enough fuel left to hit 6,000 by the end of the year,” DeMaat said, “and we think we’ll be at cruising levels from 2025 onwards. Once we get past this first phase, which I call the real ‘high growth’ phase, the trajectory is no longer going to be this.”
Bears have been warning for a long time that this long market rally will end in a big crash, and they may be right, but that could be another five years or so away, DeMaat said.
“This is going to end in a very ugly way, but I think it’s going to be years, not months,” DeMaat said. “And that’s because inflation has disappeared and the markets have disappeared with it. So a new economic cycle, a new bull market, begins. These things usually last a long time.”
DeMaat said economic cycles typically last seven to eight years, but the current bull market began in October two years ago, adding that history suggests stocks will do well by then.
“We have a long way to go, so I think it’s premature to think the stock is overvalued,” DeMaat said.
The investment chief continued: “Usually bubbles happen when you don’t have enough cash. We have loads of cash, so that’s not where the bubble happens. The bubble happens when you, me, Scott the taxi driver and his family all finally invest everything, and we’re nowhere near that level yet.”
Top 10 places to invest during the rally
As the rally continues, DeMaat said investors should diversify their portfolios across sectors.
He is most bullish on the following stocks: technology and communication“That speaks for itself,” he said, as excitement grows about the transformative potential of artificial intelligence.
Large companies DeMaat said it’s one of the most promising names because of its strong balance sheet, but he prefers growth stocks that trade at fair valuations.
That’s the most attractive sector, DeMaat said, because other sectors haven’t risen as much yet.
Among his main ideas were FinanceGiven the historically low earnings multiples and the potential to benefit from lower interest rates, energyAt this stage in the economic cycle, there should be prosperity. health care Pharmaceutical companies will use AI to streamline research; Industry For a cheap investment with solid long-term catalysts. utility This is because energy demand is skyrocketing due to the growth of AI and electric vehicles.
DeMaat said investors should also look outside the United States. Japan In his opinion, he is still young; India The main beneficiary of companies diversifying out of the China market will be the U.S., which DeMaat said is currently “uninvestable.”
