The tailwinds are likely to continue, but they are likely not to be boosted significantly**.
Don't expect the S&P 500 to be 24% in 2024, but you can't rule it out.
This year's ** stems from the fact that all conditions are favorable to the market. Shares of Big Tech have soared as AI has enhanced the products and services of the Big Seven, making analysts more optimistic about the pace of profit growth for these companies. Inflation has fallen, leading to rising hopes of interest rate cuts, which have lowered yields on longer-dated Treasuries, and the economy has continued to grow.
This is likely to continue, but it is likely not to give a significant boost**. Historically, the S&P has rarely performed similarly every time the S&P has risen more than 20%. According to Dow Jones Market Data, the U.S. has had 20% of the totals in at least 26 years, but only nine times have there been consecutive times of this magnitude.
It is worth noting that one of the favorable moments occurred in 1982 and 1983. Interest rates fell in 1982 and the market expected the economy to grow in 1983. This is similar to the market's current expectation that the Fed may cut interest rates, which will keep economic growth going.
If all goes well, here's what can happen. If gross domestic product (GDP) grows at a low single-digit rate in each of the next two years, it would be reasonable for S&P 500 companies to report roughly the same growth rate in total sales.
As inflation is declining and pressure on costs is decreasing, businesses may use this to improve their profit margins. Assuming continued buybacks, earnings per share could grow by a double-digit percentage each year.
By the end of 2024, the market is likely to reflect the expectation that total earnings per share in the S&P 500 will rise to $274 by the end of 2025, up from the current $218.
Let's say the investor is willing to pay 20At 8 times the expected 2025 EPS**, the S&P 500 will move 20% from the current 4766** to 5719, while the current expected EPS is just over 19x.
It sounds a bit far-fetched, but it could happen if interest rates come down a little as one would expect. Lower interest rates increase the discounted value of current future profits.
The internet boom of the late 90s, similar to an optimistic phase of today's AI boom, also makes the case for another **20% or more next year. From 1995 to 1999, the S&P 500 returned more than 20% per year.
However, the technology sector of the index is currently expected to grow 16% per share in 2025, while the rest of the sector will see a slower pace of total earnings growth. This means that for the index to reach 20% in 2024, valuations will have to rise significantly, or tech stocks or other ** will have to make more profits than expected.
Overall, DataTrek founder Nicholas Colas wrote, "one might say we're playing a 'baby's version' of the '80s' and '90s' storyline right now," and that "the S&P 500 will definitely be another 20%, but it needs everything to get it right." ”
By Barron's contributor Jacob Thornsain
Edited by Ren Peng
Copyright Notice: Barron's original article, without permission, may not**. For the English version, see December 22, 2023** "How the s&p 500 can gain another 20% in 2024."”。
The content of this article is for informational purposes only and does not constitute any form of investment and financial adviceThe market is risky and investors should be cautious. ）
Market analysis.