Remember the “strategist short squeeze”?

In June and July, when markets melted up following Nvidia’s game-changing Q1 report and the resolution of the debt ceiling standoff, US equities got away from the people whose job it is to forecast them. At one juncture, the disparity between spot equities and the average year-end Wall Street target was around 300 points on the upside, a remarkable development given that typically, strategists’ targets are above spot — they tend to forecast gains for stocks.

In late July, a couple of weeks before the term premium started to rise to the eventual detriment of equities, Bloomberg ran a piece reiterating a contention I made again and again over the preceding several weeks. The disparity between the market and the average year-end Wall Street target wasn’t tenable. You can’t stay bearish and wrong on stocks in perpetuity as a Wall Street equity strategist.

If you wait too long to turn bullish (or at least less bearish) you end up in an impossible position, which I described as follows. If you stick with fundamentals-based calls for stocks to sell off and the downdraft never materializes, you’ll be even further behind the curve and derided as hopelessly obstinate. If you turn bullish, the peanut gallery will immediately call it a contrarian indicator. If stocks do indeed fall thereafter, the embarrassment is compounded by the annoying little voices that whisper, “You knew it all along. The selloff was coming. If you’d just waited another month…” There’s no right answer.

Fortunately for bears, the tide turned in August, when an escalating selloff at the long-end of the US Treasury curve finally torpedoed the equity rally. Emboldened by a three-month selloff, some bears pushed their luck in late October. A Santa rally wasn’t likely, they said. The rest is history, illustrated by the simple arrow in the drawdown figure below.

Against the grain, a few bears adopted cautious 2024 targets in year-ahead outlook pieces published into the teeth of the November/December “everything rally” which took the S&P to the brink of a new record.

Now, we’re at risk of another “strategist short squeeze.” That’s the name Bloomberg gave to the sometimes self-fulfilling dynamic whereby big-name Wall Street firms are compelled to raise targets to avoid falling too far behind a rally, an act which bolsters sentiment further, stoking the fire among excitable investors.

Coming off a seventh consecutive weekly gain for stocks fueled in part by the second-largest inflow to US equity-focused ETFs and mutual funds of 2023, Goldman’s David Kostin raised his 2024 target for the US benchmark to 5,100.

Kostin, you’ll recall, channeled the world’s most famous pop star for his 2024 outlook, released a little over a month ago. “At this time next year, portfolio managers will look back and realize the best investment strategy for 2024 was to follow Taylor Swift’s advice in the song from her 1989 album: ‘All You Had To Do Was Stay’ — invested,” he wrote, on November 15. His target was (past tense) 4,700 for next year, which implied very modest upside (around 5% from prevailing levels at the time, 6% with dividends).

Fast forward a month, and if you “stayed invested” for just four weeks, you realized that 5% 12 months early. And, so, Kostin did what one does when one doesn’t want to get left behind: He raised his target materially, to 5,100, becoming the latest top-down strategist to predict new records for the world’s benchmark risk asset par excellence on the heels of a new melt-up that effectively erased the entirety of US equities’ hiking cycle losses.

The Fed, it would seem, is prepared to cap real yields, and that’ll support equity valuations, Kostin reckoned. Goldman’s new house call entails a higher multiple. The bank sees the S&P at 4,800 in three months and 4,900 in six.

“Equities were already pricing positive economic activity but now reflect an even more robust outlook,” Kostin wrote, noting that the “substantial” easing of financial conditions since October is auspicious for the economy and corporate profits.

Recall that the bank’s US financial conditions index erased the entirety of the tightening witnessed from August through October in the space of just six weeks. The gauge notched its third-biggest single-day easing of the year following the December Fed meeting.

Kostin also suggested that some of the trillions investors have parked in money market funds could find its way into stocks. That’s becoming a mainstay of 2024 equity outlooks.

The ranks of those who don’t expect new records for the S&P in 2024 are thinning. Among the big names, it’s down to Wells Fargo, Barclays, Morgan Stanley and JPMorgan.

For now, some of those lower targets will probably stay in place, but if there’s an early-year melt-up extension that takes the S&P meaningfully through all-time highs, pressure will mount to lift “stale” targets. Just in time for the crash down.