Nearly five months through 2024, the major stock indexes are near record highs.

Wall Street doesn't think this rally is over, either, as the outlooks for earnings and economic growth have steadily risen throughout the year.

In the past two weeks, three equity strategists tracked by Yahoo Finance have boosted their year-end targets for the S&P 500. The median target on Wall Street for the benchmark index now sits at 5,250, up from the median target of 4,850 on Dec. 30, per Bloomberg data. The Street-high target has moved up to 5,600 from 5,200 to start the year too.

"The current environment is basically what the bulls were hoping for, and they are getting it," Bank of America US and Canada equity strategist Ohsung Kwon told Yahoo Finance. "It's basically a soft landing."

Kwon explained that while inflation data has come in hotter than expected to start the year, it still hasn't indicated that price increases are reaccelerating. Meanwhile, other data has signaled a slowing but strong economy, easing fears that red-hot growth could spark another inflation spike. In essence, this has fueled the soft landing narrative Wall Street bulls hoped for entering the year, per Kwon.

BMO Capital Markets chief investment strategist Brian Belski noted that markets have made an important shift as this data has come in. Markets are now pricing in about two rate cuts this year, down from a peak of nearly seven to start the year, per Bloomberg data. This aligns with the Fed's most recent projections, in which officials favored two or three rate cuts this year.

"It has become clear to us that we underestimated the strength of the market momentum, particularly considering that investor expectations and Fed policy guidance have become essentially aligned vs. the significant disconnect that existed at the beginning of the year," Belski wrote in a research note on May 15.

In that note, Belski boosted his year-end target from 5,100 to 5,600 — a new high on Wall Street. He noted that with the level of strength seen in stocks to start the year, history says further gains are likely ahead. In years where the S&P 500 rallies more than 8% in the first five months of the year, as it just did, the index gains more than 7% to finish the year 70% of the time, per Belski's analysis of historical data.

Belski and other strategists who boosted their outlook for stocks this year did warn, however, that stocks' move upward likely won't come without more pullbacks. Belski noted that April's 5% retreat was meager in comparison to the usual more than 9% seen in the second year of bull markets.

But given the rally in stocks to start the year, "should a more severe pullback happen, it will likely occur at higher index levels than we previously anticipated," Belski stated, providing a higher landing spot for the S&P 500 after a rebound.

'Talking bullish'

Entering the year, bullish strategists on Wall Street were adamant that a key to the market rally this year would be a continued rebound in corporate earnings. And thus far, that has played out. Earnings grew 6% in the first quarter of 2024, the highest rate of growth seen in nearly two years.

Thus far, what's driving earnings hasn't changed significantly. Tech earnings, like Nvidia's blowout quarter from last Wednesday, are driving the lion's share of earnings growth in the S&P 500. But strategists think the seeds are still in place for a broadening to end 2024.

Kwon noted that the first stage of the AI cycle has already been happening with earnings growing at companies like Nvidia (NVDA) as tech giants like Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT) invest in the growing technology. But the rewards are starting to expand with recent rallies in sectors like Utilities and Energy.

"We don't think it's just about Nvidia anymore," Kwon said. "Things are broadening out. ... To power, commodities, utilities, things like that."

Kwon noted in a recent research note that Nvidia drove 37% of the S&P 500's earnings growth over the past year. In the next 12 months, it's expected to represent just 9%.

Deutsche Bank's chief equity strategist Binky Chadha also believes other areas of the S&P 500 are set to contribute to robust earnings growth through the end of the year. He recently boosted his S&P 500 target to 5,500 from a prior target of 5,100 but told Yahoo Finance that target has clear "risks to the upside."

For one, Chadha notes that while people are "talking bullish," equity positioning hasn't shifted much in the past three months. Deutsche Bank's measure of positioning shows investors are "overweight" equities but not to the "extreme" levels seen in 2021 and 2018.

To Chadha, this shows there could be more room to run for stocks, particularly given that he feels consensus isn't currently pricing in outperformance for the US economy.

Chadha highlights that expectations for the US economy have really just shifted from an incoming recession to at or below normal trend growth. If that consensus continues to move higher, and the US economy once again grows more than expected this year amid what some believe could be a productivity boom for the US labor force, it's not hard to see the S&P 500 hitting 6,000, per Chadha.

"We've come a long way, but we don't seem to have gone all the way," Chadha said.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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