When will the US stock market reach a new high? Analysts say it may happen earlier than most people expect.

The S&P 500 index has overcome various obstacles, such as the small banking crisis, rising interest rates, and concerns about economic recession, and has surged 16% year-to-date, defying all worries.

However, we are still contemplating whether the index can reach new highs before January next year. After all, it is only 8% away from its all-time high.

Currently, the Federal Reserve's rate hikes are nearing an end, and the US economy is barely passing. If everything goes smoothly, US corporate earnings will start to grow again in 2024, proving that higher valuations and greater returns are justified.

Earnings are the key to the US stock market

"When will the S&P 500 index reach new highs? I believe it will be earlier than most people expect because no one is prepared," said the founder of Great Hill Capital.

If the US stock market reaches new highs, it is likely to confirm the start of a new bull market, attracting new investors, boosting the confidence of those who are already long, and forcing the shorts to cover their positions. But if there is no breakthrough, the shorts will become bolder, and others will also doubt themselves.

This was exactly the case in March 2000 when the S&P 500 index reached 1553 points, then dropped 11%, and then rose to 1530 points in September, just slightly below the March high, but subsequently experienced a 40% decline.

CEOs of companies express some concerns about this.

However, nothing is predetermined. Although there are similarities between now and the bursting of the dot-com bubble, especially with the increasing unease about the hype around artificial intelligence, this market still has something that was absent more than twenty years ago—earnings support.

According to FactSet, with sales recovery and rising profit margins, the estimated earnings per share of S&P 500 index constituents' companies for next year are expected to grow by nearly 12% to $248. If calculated at a P/E ratio of 19.8, the index will reach 4910 points by the end of this year, a 10% increase from last Friday's close, reaching a historical high.

Positive signals from global stock markets

Tim Hayes, Chief Global Investment Strategist at Ned Davis Research, confirms that the earnings outlook for domestic and international stock markets is becoming increasingly optimistic.

Perhaps the strongest signal is that while 82% of sectors in the MSCI ACWI World Index have positive expected earnings growth, only 27% of sectors have positive trailing earnings growth, with a gap of 55 percentage points.

Hayes said that over the past 20 years, when the gap between the two exceeds 50 points, the index has achieved an annualized return of 11%, far surpassing the meager 0.3% when the gap is less than 50 points. He wrote, "The current stage of the profit cycle has a bullish impact on global stock markets."

As long as it is like this, buying on dips is the right choice.