Even after its strongest run since the early days of the dot-com boom, the S&P 500 has room to move higher before the end of the year, according to trading data from JPMorgan Chase & Co.

The bank's derivatives analysts said the most popular options trade is a bet that the U.S. stock benchmark index will hit 6,200 to 6,300 this month, which, based on Friday's close of around 6,032, would imply a further gain of about 3% to 4% for the S&P 500 by the end of the year.

“We remain tactically bullish into year end given the positive macro environment, earnings growth and Fed support,” Andrew Tyler, global head of market intelligence, wrote in a note to clients Monday. “We believe it is prudent to ride the market’s momentum into mid-January with a low probability of a pullback.”

Taylor's team recommends increasing exposure to value and cyclical companies, such as banks, automakers, transportation companies (excluding airlines) and the small-cap Russell 2000 Index. In technology and telecom, they recommend continuing exposure to the "big seven tech stocks," data centers and semiconductors.

Wall Street strategists are generally optimistic about the outlook for the second half of the year - a period when stock markets typically perform strongly.

Goldman Sachs Group Inc.’s trading desk expects the S&P 500 to approach 6,300 by the start of 2025, in line with JPMorgan Chase & Co.’s forecast. The last two weeks of December and the first two weeks of January are typically the best four weeks of the year for U.S. stocks, with an average return of 2.6% since 1928, said Scott Rubner, managing director and tactician for global markets at Goldman Sachs.

The fourth quarter is usually good for U.S. stocks

This time, however, the S&P 500 has had its best first 11 months since 1997. That puts it on track for back-to-back annual gains of more than 20%, only the fourth time in the past century, according to Deutsche Bank analysis. The massive run has valued the index at more than 22 times expected 12-month earnings, compared with an average of 18 times over the past decade.

That rally could face some pressure in the middle of next month, though, ahead of fourth-quarter earnings and President-elect Trump’s inauguration, which will shift attention to policies that cast uncertainty over the economic outlook, such as increased tariffs. Such expectations have pushed bond yields higher on expectations that his policies, including a push to deport illegal workers in the United States, will add to inflationary pressures.

But that hasn’t dampened Wall Street’s bullish mood. Forecasts from major banks out to 2025 show widespread expectations that U.S. stocks will continue to rise: Goldman Sachs, Morgan Stanley and Bank of America predict the S&P 500 will reach around 6,600, while Deutsche Bank and Yardeni Research predict as high as 7,000.

JPMorgan Chase's Taylor said those who want to draw historical analogies for current trends should look to the mid-1990s, when the Fed again achieved a so-called soft landing by tightening monetary policy without tipping the U.S. into recession. That period was also marked by rising interest rates and excitement over technological breakthroughs.

Article forwarded from: Jinshi Data