Wall Street strategists see limited gains for the rest of year after big first half

There may not be much upside left this year in the S&P 500, at least according to the paid seers on Wall Street.

At the midway point of the year, stocks appear to be at a critical juncture. The S&P 500 and Nasdaq Composite have surged to all-time highs, blowing past the expectations of many strategists at the start of the year on the strength of the artificial intelligence rally. The S&P 500 is up 15% so far in 2024, while the Nasdaq has added 18%.

But those gains are looking capped from here. On a median basis, strategists surveyed by CNBC PRO anticipate that the S&P 500 will end the year at 5,500, a level that is less than 1% higher than where the broader index closed Tuesday at 5,469.30.

The S&P 500 is anticipated to stall even with a flurry of strategists recently upping their targets. This month, Goldman Sachs’ chief U.S. equity strategist David J. Kostin hiked his forecast to 5,600, citing the strength of corporate earnings. Similarly, Evercore ISI’s Julian Emanuel anticipates that the S&P 500 could end the year at 6,000, the highest forecast in CNBC’s survey.

“We see conditions in place for another breather, this time with concerns spanning all three elements of our demand-supply framework,” read a note last week from Deutsche Bank. “A sharp but narrow jump in positioning to near the top of its historical band, driven by Tech; rising risk appetite which has prompted a boom in equity inflows but now looks stretched; a temporary diminishing of buybacks again as blackout periods ramp up next week ahead of the Q2 earnings season.”

In recent days, there have been some signals that the market is due for a pullback after exhausting itself. The S&P 500 and Nasdaq Composite declined in three of the last four trading sessions, as this year’s market darling Nvidia tumbled into correction territory.

Just last week, the AI chipmaker surged to become the world’s most valuable public company, topping Microsoft for the crown, only to tumble more than 10% from its high.

Meanwhile, the Dow Jones Industrial Average has outperformed, notching on Friday its best week since May. The small-cap Russell 2000 also advanced last week.

Tuesday’s trading action suggests the AI theme is not yet over. The S&P 500 and Nasdaq Composite, both tech-heavy benchmarks, were trading in positive territory as Nvidia rebounded. The chipmaker closed Tuesday up 6.8%.

Some investors are hopeful the AI rally can still bolster the S&P 500 through year-end. However, others are concerned the recent action suggests it may be time to look to other asset classes, such as small caps where there could be a catch-up trade.

“We believe the broader market is overdue for some consolidation/pullback as we head into the summer months,” read a note from Piper Sandler on Tuesday. “Our breadth indicators must improve significantly to confirm sustainable sector rotations. The upcoming weeks will reveal whether the current trends persist or evolve into a broader market pullback.”

Meanwhile, a bearish view has been increasingly difficult to come by on Wall Street this year. But the lowest forecast in CNBC’s market strategist survey — from JPMorgan’s chief stock strategist Dubravko Lakos-Bujas — implies a truly bleak outcome for stocks this year.

By year-end, Lakos-Bujas anticipates that the S&P 500 will fall to 4,200, or a more than 20% plunge.