Industrial and Commercial Bank warns: the rally in small-cap stocks may not be sustainable, and predicts that the S&P may rise to 6800 points.

Fubon Bank Wealth and Investment Management Chief Investment Officer Darel Crank raised his year-end target for the S&P 500 index to the range of 6600-6800 points, as the stock market hits new highs and the Federal Reserve begins a loose monetary policy cycle. Crank explained his market outlook in an interview, pointing out that although volatility is expected to increase, the current economic environment is conducive to continued growth. He believed that the recent rate cut by the Federal Reserve has created a positive market environment, with "high-yield spreads hitting new lows this morning," and added that despite the rate cuts, bank stocks are hitting new highs - a rare phenomenon that historically signals economic strength rather than weakness. He is particularly optimistic about the long-term market outlook, stating that "2026 may be a stronger year," citing stable fiscal policies, continued monetary easing, and strong corporate balance sheets as the basis. He emphasized that "the market is signaling that everything will be ready for the rest of this year and into next year." When discussing specific sectors, Crank expressed skepticism about the recent strong performance of small-cap stocks. He acknowledged that small-cap stocks typically perform well in two scenarios: during economic recovery periods and during aggressive rate-cutting cycles by the Federal Reserve. However, given the significant differences in market capitalization, he was doubtful about the sustainability of the current uptrend. Crank clearly opposed shifting investments from the technology sector to small-cap stocks, stating that "the idea of rotating from tech stocks to small-cap stocks... seems somewhat ludicrous to us." He expressed concerns about the deterioration of quality in the small-cap sector, noting that "private capital inflows have taken out many quality companies, leading them to be delisted and privatized." Based on these assessments, Crank confirmed that Fubon Bank has recently taken a position to reduce holdings in small-cap stocks. "We believe that this is still the right operational strategy."