The S&P 500 will hit 5,000 early next year as global supply chain pressures begin to ease, JPMorgan says

Traders have been cheered by earnings but are still concerned about inflation.Brendan McDermid/Reuters
  • The S&P 500 is on pace to surge 6% to 5,000 by early next year, JPMorgan said in a note.
  • Easing supply chain pressures will help companies deliver strong revenue growth and record profit margins, the bank said.
  • “Textual analysis of management discussions confirm that trends are stabilizing with the worst likely behind,” JPMorgan said.

More gains are in store for the S&P 500 as global supply chain pressures continue to ease, JPMorgan said in a note this week.

The bank expects the S&P 500 to jump 6% from current levels to 5,000 in the first half of 2022. The call comes after it’s 2021 year-end price target of 4,700 was hit earlier this week. 

“Textual analysis of management discussions confirm that trends are stabilizing with the worst likely behind,” JPMorgan explained, pointing to an ongoing improvement in corporate sentiment.

With global supply chain pressures and labor shortages easing, the bank expects companies to see continued revenue growth and record margins, helping boost the index higher.

The bank pointed to several macro indicators that “point to a thaw in supply chains” and that several consumer goods and tech hardware companies expect to fully restore production this month. That could help lower prices as supply becomes more plentiful, also putting a cap on concerns of red-hot inflation.

And while an estimated 100 S&P 500 companies are still going to be suffering from supply constraints into 2022, only a handful of them are expected to see permanent demand destruction “while for the vast majority revenues will just be pushed out to 2022,” JPMorgan explained. 

JPMorgan isn’t alone in its view that the S&P 500 will hit the 5,000 level in the near term. Goldman Sachs released its 2022 outlook this week with an S&P 500 price target of 5,100. Goldman pointed to rising profit margins and historically low interest rates as the drivers behind its upside equity call.

“After months of market participants challenging our equity view, the S&P 500 has reached our 4,700 year-end price target and should rally further to reach 5,000 in the first half of 2022,” JPMorgan concluded.