Coronavirus vaccine, congressional gridlock to herald stock market 'nirvana'

S&P 500 to reach 4,400 next year: JP Morgan

The S&P 500 is poised to surge 20% next year as the U.S. economy strengthens and risks recede, according to J.P. Morgan.

A COVID-19 vaccine, low interest rates from the Federal Reserve and gridlock in Congress will provide some of the best conditions for the stock market in years.

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“We expect a ‘market nirvana’ scenario for equities with the melt-up continuing into the first half of 2021, driven by earnings recovery and multiple expansion,” wrote J.P. Morgan strategist Dubravko Lakos-Bujas, who has a Wall Street-high S&P 500 price target of 4,400 for next year with a range between 4,200 and 4,600.

Ticker Security Last Change Change %
SP500 S&P 500 4577.1 +64.06 +1.42%

He says most of the gains will come in the first half of the year as investors celebrate a COVID-19 vaccine and that there’s a high likelihood gridlock will prevent tax hikes sought by the more progressive members of Congress.

It's a “goldilocks scenario for equities," he says.

A Food and Drug Administration panel on Thursday recommended the Pfizer/BioNTech COVID-19 vaccine receive emergency use authorization. A final decision could come within days, Health and Human Services Secretary Alex Azar said Friday, with vaccinations starting as early as Monday or Tuesday.

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As the rollout of the vaccine picks up steam into the new year, investors will be focused on the two runoffs for Georgia’s Senate seats where betting markets give approximately 66% odds that each of the Republicans will win.

The GOP winning either of the two seats would prevent the Democrats from controlling both chambers of Congress.

Providing further fuel to the stock market will be a weaker U.S. dollar, corporations starting to deploy their record $2.1 trillion cash pile and approximately $1 trillion of inflows.

While J.P. Morgan is the most bullish on Wall Street, all of the other major banks also see the S&P 500 heading higher next year.

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Strategists at Goldman Sachs have a 4,300 forecast while those at Bank of America see a less impressive 3,800 due to a lot of the optimism already being “priced in.”

The S&P 500 closed at 3,668.10 on Thursday and was on track to gain 14% this year after a 29% advance in 2019. The last losing year for the index was 2018, when it fell 6.24%.