The S&P 500 has experienced an impressive surge this year, leaving many investors wondering if the index can achieve a new record high. Surprisingly, this might not be as far-fetched as it initially appears. Despite facing obstacles such as a mini banking crisis, higher interest rates, and recession fears, the S&P 500 has managed to gain 16% so far this year.
With the Federal Reserve’s interest-rate-hiking campaign coming to a close and the economy continuing its steady progress, there is hope that earnings will begin to grow again in 2024. This would provide the justification for higher valuations and potentially result in further gains.
At this point, a new S&P 500 high is just 8% away. Thomas Hayes, founder of Great Hill Capital, believes that this milestone may be achieved sooner than most people expect due to the lack of preparation among investors.
Reaching this milestone is not merely an academic concern. The old peak looms, capturing the attention of both bulls and bears. If the record is broken, it could signify the start of a new bull market, attracting new investors and bolstering the confidence of current long-term investors while also forcing short-sellers to retreat. On the other hand, if the high is not surpassed, it will give the bears confidence and make everyone question their predictions.
A similar scenario unfolded in March 2000 when the S&P 500 initially rose to 1553, fell 11%, and then came close to reaching the previous high at 1530 in September. Unfortunately, this failure to surpass the peak triggered a subsequent 40% drop.
Matthew Tuttle, CEO of Tuttle Capital Management, acknowledges the concern surrounding this situation but remains optimistic about the prospects for the S&P 500 in the future.
In conclusion, as we approach 2024, all eyes are on the S&P 500 and whether it can achieve new highs. The potential implications of this milestone are significant for investors, making it a crucial moment for the market.
The Positive Outlook for Stocks: Earnings Growth Leads the Way
With the recent surge in artificial intelligence hype, one might draw comparisons between the current market and the dot-com bust of the past. However, there is a key difference that suggests a more positive outcome this time around: earnings.
According to FactSet, analysts anticipate a nearly 12% growth in aggregate S&P 500 earnings per share next year, reaching $248. This upward projection is driven by a recovery in sales and an increase in profit margins. If we assign a multiple of 19.8 to these earnings, consistent with earlier trading values, the index could reach an impressive 4910 by the end of this year. This would mark a 10% increase from Friday’s close and establish a new record high.
Tim Hayes, chief global investment strategist at Ned Davis Research, echoes this sentiment, noting that the earnings outlook for both domestic and international stocks is becoming increasingly positive. A noteworthy indicator is the discrepancy between forward and trailing earnings growth among sectors in the MSCI ACWI world index. While 82% of sectors exhibit positive forward earnings growth, only 27% display positive trailing earnings growth—a gap of 55 percentage points. Hayes highlights that historically, when this gap exceeds 50 points, the index has experienced an annualized gain of 11%, significantly outperforming the meager 0.3% rise when the gap is less than 50.
In summary, the current phase of the earnings cycle presents a bullish influence on global equities, per Hayes’ analysis.
Investors are advised to embrace a “buy the dips” strategy as they navigate the market’s fluctuations.
