The financial world is buzzing with speculation: can the S&P 500, after a staggering 24% surge this year, repeat its spectacular performance and climb another 20% in 2024?
While the odds might seem long, history whispers, “Don’t bet against it.”
This year’s financial fairy tale has been nothing short of miraculous, with everything aligning perfectly for a stock market bonanza.
Big Tech, fueled by groundbreaking advancements in artificial intelligence, has been on a meteoric rise, dazzling analysts with its burgeoning profit potential.
Meanwhile, the cooling inflation rates are stirring hopes of interest rate cuts, sending yields on long-dated Treasury debt into a nosedive.
And let’s not forget the relentless growth of the economy, defying all odds.
But can lightning strike twice?
History offers a mixed bag of clues. According to DataTrek Research, while there have been 26 years of the S&P 500 leaping over 20%, only nine times has this been followed by back-to-back rallies of similar magnitude.
However, it’s worth noting that during the 1982-1983 period, a scenario eerily similar to today’s unfolded: falling interest rates and a burgeoning economy set the stage for consecutive market triumphs.
If all stars align again, here’s how 2024 could become another blockbuster year for the S&P 500: Imagine GDP growing in the low single digits for the next couple of years.
This growth could translate into similar increases in aggregate sales for S&P 500 companies. With inflation’s grip loosening, companies could enjoy a boost in profit margins.
Throw in continued stock buybacks, and we’re looking at potential double-digit rises in earnings per share each year.
Fast forward to the end of 2024: the market could be basking in the glow of an aggregate EPS for the index soaring to $274 by 2025’s end, up from $218 today.
This could catapult the S&P 500 to an eye-watering 5719, assuming investors are ready to shell out 20.8 times the expected 2025 EPS.
It sounds ambitious, but it’s not beyond the realm of possibility, especially with interest rates expected to dip further, enhancing the present value of future profits.
Let’s not forget the late 1990s internet boom, another era of unbridled optimism akin to today’s AI frenzy.
The S&P 500 recorded annual gains exceeding 20% from 1995 through 1999.
Currently, the tech sector alone is projected to witness a 16% EPS growth in 2025.
For the index to climb another 20% in 2024, we’d need either a valuation leap or profits from tech or other sectors to exceed all expectations.
Nicholas Colas from DataTrek sums it up perfectly: “Another +20 percent year for the S&P 500 can occur, but it requires that everything go exactly right.”
So, investors, are you ready to ride the wave of potential prosperity, or will you brace for the unpredictability of the markets?
One thing is certain: the stock market narrative of 2024 will be one for the books!
