Why S&P 500 rising to 6,000 is 'hardly a stretch' as stocks attempt new record
By Christine Idzelis
The S&P 500 index was trading in record territory Monday
The U.S. stock market appears to have “earnings momentum” over the next year, with an S&P 500 price target of 6,000 this year not much of a stretch from its current level after the Federal Reserve last week began its interest-rate cutting cycle, according to DataTrek Research.
The S&P 500 index SPX was pressing into record territory on Monday, rising above its record close of 5,713.64 on Sept. 19, before rising slightly below that all-time peak at around 5,709, according to FactSet data, at last check.
“Contrary to popular opinion in some bearish circles, it’s not just” technology and artificial intelligence generating the S&P 500’s earnings growth, DataTrek co-founder Nicholas Colas said in a note emailed Monday. “Many groups should pull their weight, and then some, over the next year.”
Wall Street analysts expect the S&P 500 index’s earnings per share to grow 15.2% next year, stronger than this year’s 10% growth, according to DataTrek. “Expected S&P 500 earnings growth over the next year is widely distributed across sectors and is most pronounced in cyclical groups like energy, materials, and Industrials,” Colas found, citing FactSet data for calendar year 2025 in the chart below.
With the Federal Reserve now in “easing mode, even as the U.S. economy continues to grow nicely,” the path of least resistance for stocks is probably higher, Colas said. As for corporate earnings expectations, Wall Street analysts’ estimates for the S&P 500 ” bubble up” to $258 per share over the next four quarters – a roughly 12% increase from the last four quarters, he said.
Meanwhile, the S&P 500 trades at 22.1 times forward 12-month earnings estimates, a multiple that is “rich” relative to its 5-year average of 19.5 and 10-year-average of 18 but below the 2020 peak of 23.2, according to DataTrek.
“The upshot here,” said Colas is that S&P 500 at 6,000 “is something of a ‘peak confidence’ price target based on an optimistic but achievable estimate of near-term index earnings power.”
S&P 500 record after Fed rate cut
The S&P 500 notched a record peak of 5,713.64 on Sept. 19, the day after the Fed announced a large interest-rate cut of a half percentage point to start its rate-cutting cycle.
“The soft landing probability has increased,” said John Madziyire, senior portfolio manager and head of U.S. Treasuries and TIPS at Vanguard, in a phone interview. The U.S. economy has been resilient, with inflation easing against the backdrop of “restrictive” monetary policy, he said.
“We are basically now just recalibrating back to neutral,” he said, referring to the Fed beginning the process of lowering its benchmark rate to neutral level that neither slows nor stimulates the economy.
The Fed last week reduced its benchmark rate to a target range of 4.75% to 5%. In Madziyire’s view, the so-called neutral rate could be near 3%.
Interest rates in the bond market have dropped this year, with yields on 10-year and two-year Treasurys down so far this month and year to date.
On Monday the yield on the 10-year Treasury note BX:TMUBMUSD10Y was trading up about one basis points to around 3.74% while the two-year Treasury rate BX:TMUBMUSD02Ysliped about one basis point to around 3.58%, according to FactSet data, at last check.
The S&P 500 getting to 6,000 is “hardly a stretch during a period of rising corporate earnings” and lower interest rates, said Colas, noting that a rise to that level would represent a 5.2% from its close pricing on Friday.
The U.S. stock market was edging higher Monday afternoon, with the S&P 500 SPX gaining 0.1% while the technology-heavy Nasdaq Composite COMP and Dow Jones Industrial Average DJIA each traded up less than 0.1%, according to FactSet data, at last check. The Dow ended Friday at a record high.
-Christine Idzelis
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
09-23-24 1310ET
Copyright (c) 2024 Dow Jones & Company, Inc.