The S&P 500 will outperform most estimates: Strategist

The S&P 500 (^GSPC) has been on a tear recently, with multiple financial firms raising their price targets on the tech-heavy index. Infrastructure Capital Advisors CEO Jay Hatfield joins Market Domination Overtime to discuss his bullish S&P 500 target of 5750.

"This market should be getting smashed. We went from 380 in the beginning of the year to 435 and we're just churning around at all time highs. So what I think what is happening is like last year, why we were bullish last year, everybody knows the next inflection is a cut, last year it was a pause. So why do you want to sell now just because it's going to take two more months to have the cut?" Hatfield says.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- While the Street high for the S&P 500 is now at 5,553, our next guest says, hold my beer. He is looking at an even higher target for the S&P 500 this year, 5,750. Joining us now is Infrastructure Capital Advisors CEO Jay Hatfield. And indeed, in a recent note, you talked about 5,750. AI is part of it. And the Fed outlook is part of it. So talk us-- talk to us how-- about how you got there.

JAY HATFIELD: Thanks, Julie. Well, it does relate to the conversation we're just having. We're assuming the 10-year goes to 3 and 1/4. So if it doesn't, then the theoretical value of the S&P is way below our target. So we can't accept-- it's not going to work if Jamie Dimon is right and we have 8% treasuries.

But we are bullish notwithstanding the fact that our economy is strong, because Europe is very weak. And US investors have a very strong tendency to ignore the rest of the world, which makes all the sense in the world with equities, because you have NVIDIA. All the best companies are here. And everybody looks to the US for equities. But with bonds, that-- they're very fungible.

So if the ECB cuts, I think the UK will cut. We always already had the Swiss bank cut. Global rates should rally. And that will spark the next leg of the rally.

- Have you, Jay, been surprised at the way with which equity investors specifically have kind of made their peace with the notion that rates are going to be higher for longer? I mean, if we went back in time six months, well, we saw the market, you know, have a rough patch in the fall of last year. And fast forward to now, maybe it's June. But everyone's like, it's fine. We're going to be handling this just fine. Have you been surprised by that resilience, maybe?

JAY HATFIELD: Really, I would-- yeah, what we would call this when I worked at big hedge funds is a bad short. Like, this market should be getting smashed, right? We went from--

- Yeah.

JAY HATFIELD: --380 at the beginning of the year to 435. And we're just turning around at all-time highs. So what I think is happening is exactly like last year, why we were bullish last year.

- Yeah.

JAY HATFIELD: Everybody knows the next inflection is a cut. Last year was a pause. So why do you want to sell now just because it's going to take two more months to have the cut?

- And to that point, do you feel there's a positioning part of this market too? Are people still caught, like, flat footed to your point on the wrong side of this? Because that's really what happened in '22. What happened in '23 is '24 just an extension of that kind of idea in the market.

JAY HATFIELD: Absolutely. And not just hedge funds but also just individuals are very attracted to having 5% money that's low risk. Like, I advise one of my friends on his portfolio. And he called me and said, oh, I want to raise another 10% cash because I can get 5 in the market. And I said, well, but if small caps are up 25 and the market's up 15, then you're going to leave 10% on the table.

So I do think a lot of people took solace in getting higher rates and are being too conservative because you don't want to miss the first leg of the rally because that's where you get the excess returns. From there on, you get the normal kind of 10%. We should get 15 to 20 probably this year and next year.

- So, you know, when I look at this and see 5,750-- and here you, say 3 and 1/4 on the 10-year. 3 and 1/4 feels like a sort of a bigger swing than 5,750 to me, just in my gut.

JAY HATFIELD: Right.

- How high conviction are you? And are you hedging those views?

JAY HATFIELD: Well, I think that we would get really concerned if the ECB started to say they were going to push off those cuts. We have been short Fed Fund Futures most of this year, which is a mildly profitable trade. You have to do billions to actually make it move. It doesn't move around that much.

So we had expected that all along. And we would have been re-evaluating maybe lowering our target if it was dependent on the Fed. But the thing to keep in mind is that the dollar is going to be very strong. If the ECB cuts, the UK cuts, Fed holds, the dollar is going to continue to depreciate. That's very deflationary.

Oil is priced in dollars. We're bearish about CPI printing a little bit hot because oil prices have run up. Gasoline prices have run up. So if we get declining oil prices, lower commodities, stronger dollar, it's very deflationary. So that should give the Fed cover to cut in July, even if our economy continues to be strong.

- But it sounds like maybe the Fed is comfortable being a little bit of a global outlier in that, you know, again, in a situation where we have the dollar doing some of the work they need done for them on the inflation side, they might be comfortable not following, you know, Matt [INAUDIBLE] right away, giving them a little bit of a lead time. Would that be a change maybe from the way the Fed has thought of their role as a global central bank?

JAY HATFIELD: No doubt. And also, it's extremely unusual for other central banks to go before the Fed because it massively weakens their currency. So it's not the normal situation. But this US economy is just a juggernaut. You know, the combination of AI, we have a housing shortage. None of this exists in Europe. Europe has floating rate mortgages, by the way. So it's terrible for consumers. We have almost none because of the financial crisis.

So the US advantages-- natural gas prices are 80% below the rest of the world-- are so profound. This is a very unusual cycle. Like, we should have a recession right now.