S&P 500 Index hits a new high, institutions: Breaking through 6000 points is just around the corner

According to DataTrek Research's latest analysis, the US stock market may experience "earnings momentum" in the next year, with the S&P 500 index reaching the target of 6000 points in 2024, especially after the Federal Reserve started a rate cut cycle last week.

Based on FactSet data, the S&P 500 index closed at 5718.57 points on Monday, setting a new historical record. Nicholas Colas, co-founder of DataTrek, stated in an email sent on Monday: "Contrary to some pessimistic views, what is driving S&P 500 earnings growth is not just limited to the technology and artificial intelligence sectors. In the next year, multiple industries will contribute, possibly even exceeding expectations."

According to DataTrek, Wall Street analysts expect the S&P 500 index's earnings per share to grow by 15.2% next year, higher than this year's 10%. Colas cited FactSet data showing a broad distribution of earnings growth expectations next year, particularly strong in cyclical industries such as energy, materials, and industrials.

Colas also noted that with the Federal Reserve entering a "dovish mode," even as the US economy continues to grow steadily, the stock market may continue to rise. In terms of corporate earnings expectations, Wall Street analysts project the S&P 500 index's earnings per share to rise to $258 over the next four quarters, an increase of about 12% from the past four quarters.

Meanwhile, the current price-earnings ratio of the S&P 500 index is 22.1 times, higher than the five-year average of 19.5 times and the ten-year average of 18 times, but still lower than the peak of 23.2 times set in 2020. Colas concluded: "The target of 6000 points for the S&P 500 index represents a price expectation of some kind of 'peak confidence,' based on an optimistic but achievable estimate of recent index earnings power."

S&P 500 Index Hits New High After Fed Rate Cut

On Monday, the S&P 500 index rose slightly, surpassing the previous historical high set on September 19. This was the second day of the Federal Reserve's rate cut cycle, with a 50 basis point reduction announced.

John Madziyire, Senior Portfolio Manager for US Treasuries and TIPS at Vanguard Group, stated in a phone interview: "The probability of a soft landing has increased." He pointed out that the US economy has shown resilience, with inflation easing under a "tightening" monetary policy backdrop. He further noted that the Federal Reserve is currently recalibrating benchmark interest rates to a neutral level, which neither slows down nor stimulates the economy.

Last week, the Federal Reserve lowered the benchmark interest rate to a target range of 4.75% to 5%. Madziyire believes that the so-called neutral interest rate may be close to 3% This year, interest rates in the bond market have declined, with the yields on 10-year and 2-year US Treasury bonds falling this month and year-to-date. On Monday, the yield on 10-year US Treasury bonds rose slightly to 3.74%, while the yield on 2-year bonds remained at 3.576%. The data is sourced from Dow Jones Market Data.

Colas stated that in an environment of corporate profit growth and declining interest rates, it is "not difficult" for the S&P 500 Index to reach 6000 points, representing a 5.2% increase from last Friday's closing price