As the bull market in the S&P 500 marks its second anniversary, investors are keenly watching the horizon for signs of what might come next. After launching from a bear market low two years ago, the S&P 500 has surged more than 60% and is now close to all-time highs. Fueled by optimism around artificial intelligence (AI) and a resilient U.S. economy, Wall Street strategists are generally bullish about the future. Let’s explore where this market might head from here.
A Bull Market in Full Swing
When the S&P 500 increased by 20% from its previous lows in June 2023, the bull market was formally proclaimed. Given that bull markets typically last 5.5 years, historical trends suggest that this one is still in its early stages. According to Ryan Detrick, chief market strategist at Carson Group, the present market performance is below the average total return of around 180%, notwithstanding the remarkable increases over the previous two years.
With earnings growth anticipated to accelerate and the economy showing stability, many experts believe there’s still plenty of room for this bull market to thrive. For instance, BMO Capital Markets chief investment strategist Brian Belski recently raised his year-end price target for the S&P 500 to 6,100, a significant increase from his previous target of 5,600. Goldman Sachs has also jumped on board, raising its year-end target to 6,000, with a longer-term forecast of 6,300.
Risks Lurking Beneath
Still, not every analyst has an entirely positive outlook. An obstacle that might arise is worries about high prices. Senior investment expert Kevin Gordon of Charles Schwab claims that present values are among the highest since the dot-com boom and 2021. Excessive valuations may be cause for alarm, but they don’t always mean that a bull market is coming to an end. Long-term price retention in stocks is common, and a specific trigger is typically required for a decline.
Michael Kantrowitz, chief investment strategist at Piper Sandler, points out that the two most common triggers for market pullbacks are spikes in interest rates or rising unemployment rates. With inflation decreasing from the highs of 2022 and unemployment rates stabilizing, these catalysts don’t seem imminent.
Unforeseen Events
Unexpected things can, of course, always cause the market to tremble. As Citi’s Scott Chronert notes, it’s hard to guess where these kinds of shocks may originate. It’s possible that little shifts in the economic story won’t be sufficient to cause large downturns. It is unlikely that there would be an abrupt unraveling given the durability of the current climate.
Moving Toward Fundamentals
As the bull market matures, experts believe the focus will shift from macroeconomic factors to fundamentals, particularly earnings. Kantrowitz emphasizes that for the bull market to sustain its momentum, companies will need to show strong earnings growth. Current consensus estimates suggest earnings will grow nearly 10% in 2024 and about 15% in 2025, setting a high bar for performance.
AI remains a hot topic, and its influence is expected to extend beyond just tech giants. Companies outside the immediate AI sphere may also benefit as the technology impacts various sectors, pushing for improved margins and profitability.
Insights from Market Experts
As the bull market enters its third year, experts are weighing in on potential trajectories. Jay Woods, chief global strategist at Freedom Capital Markets, notes that initial skepticism surrounding this bull market has now shifted. With a diverse market leadership that extends beyond mega-cap tech, he believes this rally has the momentum to continue for another 12 to 18 months.
Ryan Detrick reiterates that despite some concerns, this bull market is still in its early stages. While he doesn’t expect returns to mirror the explosive growth of the previous two years, he anticipates steady gains. Historically, the third year of a bull market sees average returns around 8%, which aligns with general stock market expectations.
Room for Growth
Ross Mayfield, an investment strategist at Baird, suggests that the relatively muted performance of the first two years could create opportunities for stronger returns in the third year. He believes that the combination of a favorable interest rate backdrop and expected earnings growth sets the stage for potential outperformance.
Rob Haworth from U.S. Bank Asset Management takes a more optimistic stance, predicting the S&P 500 could rise to 6,480, translating to about a 12% increase. His analysis hinges on strong earnings growth, forecasting $270 in earnings per share for 2024, reflecting a 13% rise from current estimates.
The second anniversary of the bull market offers cause for hope as well as caution for the future. The underlying fundamentals, especially profits growth, will be crucial in deciding the market’s destiny even while high valuations and possible hazards are there. Investors will need to closely monitor the performance of diverse industries, particularly as AI’s influence grows. There may be more room for this bull market to rise given the correct circumstances.
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