S&P 500 Continues its Ascent

The S&P 500 (SPX) defied pre-Fed meeting jitters, notching its 25th record closing high of the year on Monday. It appears poised to extend its record run on Tuesday. The rapid rise in the stock market is raising concerns among some investors, who believe the market is ripe for a correction, driven by “optimism and animal spirits rather than fundamentals.” However, Jonathan Golub, a Wall Street veteran who recently joined Seaport Research Partners as chief U.S. equity strategist, strongly disagrees.

Jonathan Golub's Bold Bullish Prediction

Golub and his colleague Patrick Palfrey, the firm’s head of portfolio strategy, foresee double-digit returns for the S&P 500 over the next 15 months. They project the index to end the year at 6,700 and further climb to 7,300 by the end of 2026 (roughly a 10% gain from current levels). This forecast is among the more optimistic of the recently released targets. Golub emphasizes that earnings growth will be the core driver of equity expansion, with the tech sector expected to continue leading the charge. While current valuations may appear high, they “still have further to go.”

Strong Fundamentals Support the Market

“We’re not in a late 1990s situation, and there's far more room for valuation expansion than people appreciate,” he said. “As long as the growth thesis in tech remains intact, and the economy remains relatively healthy, valuations will continue to move higher.” He points out that some investors are overlooking a key fundamental factor. “In May, economists believed there was a 40% probability of a U.S. recession in the next year. That’s now down to 30%, and the economic backdrop is actually improving. The 10-year Treasury yield is down 50 basis points this year, credit spreads have narrowed, and market volatility has come down,” he said.

Resilience and Logic Underpin Market Gains

“So, when you look at those data points, the market’s rally is entirely driven by rational fundamentals. From that perspective, to simply say ‘it’s gone up too much’ is completely meaningless and has no basis. The market is not a product of gut feeling, it’s supported by a series of fundamentals. Companies have real earnings and growth prospects, and the economy provides real discount rates for those earnings. All of that points to the current market rally having strong resilience and rational logic,” Golub added.

The 'Buy the Dip' Strategy

So, should investors continue to employ the “buy the dip” strategy that has proven effective for some this year? Golub says investors simply need to ask themselves one question: “Is the pullback the beginning of a larger move lower, or is it just a short-term blip against a good economic fundamental backdrop?” Golub believes that markets tend to perform well in non-recessionary periods. For example, if the market pulls back on tariff concerns, “as long as those concerns don’t metastasize into a recession, (buying the dip) is a smart strategy”; but once a recession is triggered and an economy meaningfully contracts, buying the dip “quickly becomes a bad choice.”

Tech and Earnings Surpassing Expectations

Golub said two factors have changed his view this year: one is that the tech sector drove earnings above expectations, and the second is that tariffs have been less disruptive to the economy and markets than anticipated – even as the labor market has shown some signs of pressure. He argues that if the tech sector cannot sustain its strong performance, the S&P 500's upward momentum will be difficult to maintain. For example, if AI spending or the tech sector suddenly experiences a shock, related companies might experience earnings significantly below expectations. “I’m not saying that that’s definitely going to happen, but if it does, it’s going to be very hard for overall S&P 500 earnings to hold up because tech has a lot of weight in that index,” he said. “Tech earnings don’t have to significantly outperform, they just can’t disappoint.”

Potential Risks to the S&P 500 Outlook

Another major risk to the S&P 500 outlook is further weakening in the labor market, or government policy uncertainty that dampens business spending. Golub concludes, “We only need one thing from the economy – not to go into recession. The economy doesn’t have to grow fast, it just can’t go backwards. Right now, there are almost no signs that we’re headed for a recession.”

Important Note

This analysis is for informational purposes only and does not constitute investment advice. Investors should always conduct their own research and seek advice from a qualified financial professional before making any investment decisions. Stock markets are influenced by multiple factors, and conditions can change rapidly.