This market rally still has plenty of room to run, market veteran James Demmert says. Strong earnings and interest rate cuts will send money flowing into US stocks. Here are 10 top investments that bullish investors can make to capitalize on the boom.
A record-setting year for US stocks will only get better, according to a bullish market veteran whose bold calls are coming to fruition.
James Demmert has diagnosed all types of markets in his nearly four decades of experience, including over 30 years at Main Street Research, the multi-billion-dollar firm he founded.
There are few more exciting market environments than the opening chapters of bull markets in the investment chief's mind. Conversely, missing out on such a rally can be utterly devastating.
"The beginning of bull markets has this really incredible trajectory," Demmert said in a recent interview. "And that trajectory, if you look back in the beginning of any bull market — let's say in the '90s or early 2000s — that first year and a half, two years can be really astonishing."
A slew of catalysts, including investors' fear of missing out, will drive the S&P 500 to 6,000 by year's end, Demmert predicted. In his "rocket launch" analogy, the so-called "power boosters" are excessive cash levels, cautious earnings estimates, and upcoming interest rate reductions.
The veteran investment chief's forecast keeps him in opposition with much of Wall Street, as top strategists have signaled recently that the index is bound to take a breather later this year.
Market skeptics have said for months, if not years, that stocks will stagnate since they've already accounted for plenty of good news. But Demmert disagrees, saying those warnings ring hollow.
"When people say, 'Oh, well, it's already priced in' — keep in mind, they said that in January, they said that back in March, and they're saying it again," Demmert said. "And they keep saying it, and I think what they're doing is they're losing track. That trajectory and the fuel that can continue it to go on still remains. So that's where we get to 6,000. We think that people, at this point, saying 'it's already in the price' are sort of the same crowd that said it in the last few quarters."
Stocks can surge for years despite long-term risks
Once earnings exceed expectations — including by 10% next year — and the Federal Reserve delivers a pair of rate cuts, Demmert said money on the sidelines will rush into stocks.
"People in cash have so much FOMO right now," Demmert said. "They're dying to put this stuff to work."
But the S&P 500's path to 6,000 won't be a straight shot, the investment chief cautioned. A brief, relatively shallow pullback of 5% to 7% is likely later this year after this massive rally, he said.
"I'd be very surprised if we don't get a shallow correction between now and the end of the year," Demmert said. "So there's going to be a chance for investors to buy on weakness between now and the end of the year. I'm not sure exactly when that is, but we're overdue for a bit of a pullback."
Once the S&P 500 reaches Demmert's year-end target, he thinks it may very well take a pause.
"We just think that there's enough fuel left to get this trajectory to 6,000 by the end of the year," Demmert said. "I think into 2025 and beyond, we're at cruising level. The trajectory is not going to be this anymore as you get past this first, what I call the real 'high-growth' phase."
Bears have long warned that this long-term market rally will end with a massive crash. They may be right, Demmert said — but not for another half decade or so.
"This whole thing ends, eventually, very ugly, but I think that's years away — not months," Demmert said. "And that's because, again, inflation's been washed out; the market was washed out with it. So we start a new business cycle; new bull market. These things usually last."
Economic cycles usually go for seven to eight years, Demmert said, and this bull market began two Octobers ago. History suggests that stocks will be fine until then, the market veteran added.
"We have a long runway," Demmert said. "So the idea that stocks are overvalued, I think, is way premature."
The investment chief continued: "Typically, when you have a bubble, it's when there's not enough cash left. We're sitting on piles of it. So that's not where bubbles occur. Bubbles occur when you, me, the taxi cab driver, Scott, and his family have all finally put it all in. And we're just nowhere near there."
10 top places to invest during the rally
As the rally rolls on, investors should position their portfolios by diversifying across sectors, Demmert said.
He's most bullish on stocks tied to technology and telecommunications, which he said "speak for themselves" as excitement about artificial intelligence's transformative potential abounds.
Large-cap companies are among the best bets due to their robust balance sheets, Demmert said, though he prefers growth stocks that trade at reasonable valuations.
Notably, Demmert said other sectors are most enticing since they haven't risen as much yet.
Among his top ideas are financials, given their historically cheap earnings multiples and their potential to benefit as rates fall; energy, which should thrive at this stage of the economic cycle; healthcare as pharmaceutical firms use AI to make research more efficient; industrials for an inexpensive investment with solid long-term catalysts; and utilities since energy demand is surging due to the growth of AI and electric vehicles.
Investors should also look outside of the US, Demmert said. The long-awaited bull market in Japan is still young, in his view, and companies based in India will be the primary beneficiary of corporations diversifying away from China — a market that Demmert said is now "uninvestable."
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