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The S&P 500 up over 16% so far this year, and closing Friday at its 34th record high of the year. That run is many firms boosting their year-end targets for the S&P 500. But one bank has decided to drop coverage of the index all together, actually dropping their coverage of their year-end target for the index behind that call. We have Michael Kantrowitz. He's Piper Sandler's co-chief investment strategist. Michael, thanks so much for being here. I want to pull up a quote from your note on this. You say talking about the S&P 500 to communicate investment insights to investors has become an exercise in futility. I was giggling when this note came out because you definitely sound a little bit peeved by the AI rally. Is that what drove this call?

No, no, not at all. And it's not a change to my views. You know, we've been bullish all year and I'm still constructive on on larger cap equities. It's more about, you know, in the last few months as I was trying to think about raising my target again, um, I didn't really feel that comfortable being intellectually honest saying that I kind of have a high conviction view of where the S&P is going to end up, nor do I did I think it really adds value to our clients who are institutional investors, who it's not about whether the market's going up or down, but really what you have to own and what you have to avoid. And we've seen correlations of stocks within the S&P 500 drop to about a 25-year low, uh, compared to the 500. So there's really is diminishing value when talking about the market because, uh, again, most stocks are not trading like the market.

And Michael, given that, I guess for investors out there trying to figure out what happens next, you are still constructive on US equities, you do still see opportunities. So if it's not within, or you don't think maybe it's helpful for investors to have a bull versus bear call right now on the S&P 500, what should investors be looking for? What are some of the more helpful views that you think at this point that tell us a better story about where that opportunity is?

Sure. Yeah, and again, it's not, I think you have to have a bullish and bearish view, and and we are bullish, um, but, you know, again, if I covered Apple or Microsoft, and I was bullish on Apple or Microsoft and said, you know, you know, the conclusion is clear, go buy Apple or Microsoft. If you're bullish on the S&P 500 this year, for an institutional investor that's not buying the index, well, how does that really help them? Because you look at the market this year, we're up 16, 17%. Typically that much of a rally would would come along with massive risk-on leadership, small caps outperforming. and small caps as we sit here year-to-date have have returned zero. Uh and so we've been focused on where to invest. And for the last two years, we've been big bulls on larger quality, profitable names that essentially of economies of scale that can sustain their businesses, uh, the the best amidst this higher interest rate environment. And so it's still very much a large cap growth call avoiding smaller companies with weaker fundamentals.

Yeah, I I heard you mentioned quality, and I want to jump in on that because you say that you continue to emphasize quality at a reasonable price. Where does that exist? Because isn't part of the problem the fact that quality valuations have really been bid up since the bottom in late 2022?

Yeah, well, much of the the the increase in valuations from late 2022 was just a recapture of the valuations that were lost during that bare market. So really that was much of 23 was just kind of a give back, uh, on the 2022 bare market. From here, we haven't seen as much of a rapid improvement in valuations this year, uh, at the index level. Again, certain stocks have seen PE expansion. So we're looking for companies that have continued to, uh, outpace their peers in terms of earnings growth, uh, that are of the highest level of profitability, and we're looking for those two types of attributes along with companies that have valuations that are not the most expensive. So it's, you kind of have to sacrifice a little bit of growth, perhaps in quality, to find names that aren't egregiously expensive, but it's that sweet spot which we call quality or reasonable price. And and we've got, uh, in the S&P 500, 50 names that have beaten the index this year. Uh and it's not just about all AI or all tech.