S&P 500 Hits Record High 49 Times This Year... Expectations for '5000 Era' to Begin in One Year

S&P 500 Index Trend Over 5 Years [Image Source= Bloomberg]

[Asia Economy Reporter Byunghee Park] The S&P 500 index on the New York stock market in the United States closed last week at an all-time high for four consecutive trading days. It closed at 4468.00 on the 13th, marking the 49th all-time high this year based on the closing price.

Wall Street is raising expectations for the dawn of the S&P 500 5000 era. According to FactSet Research, the current 12-month forecast for the S&P 500 index by Wall Street analysts is 4949. This is 11% higher than the current closing price, approaching the much-anticipated 5000 mark by about 1%.

The S&P 500 index first surpassed the 1000 mark in February 1998. It then broke through 2000 in August 2014, 3000 in July 2019, and crossed 4000 on April 1 of this year.

The S&P 500 index has already risen 18.95% this year, which is about 2.5 times the average annual increase of 7.47% from 2001 to 2020.

Despite the sharp rise in the index this year, analysts remain optimistic because corporate earnings have surged, supporting the current rapid increase in the S&P 500 index. According to FactSet, the growth rates of net income and sales for U.S. companies in the second quarter of this year are at their highest levels since 2008.

Sharon Bell, an investment strategist at Goldman Sachs who recently raised the S&P 500 index forecast, explained, "We need to maintain exposure to global stock markets for a while. Corporate earnings have increased remarkably, and this needed to be reflected."

Russ Kosterich, portfolio manager at BlackRock, said, "The U.S. economic growth rate is at its highest level in decades, and corporate earnings are a strong tailwind."

At the beginning of this year, the S&P 500 index was at about 22.7 times the 12-month expected corporate earnings. However, as this year's corporate earnings growth rate exceeded expectations, the recent price-to-earnings ratio (PER) has dropped to 21.1 times. This is still higher than the average PER of 18.1 times over the past five years.

Because of this, there are also pessimistic views on the future direction of stocks.

David Kelly, chief investment strategist at JP Morgan Asset Management, said, "Considering the S&P 500 index, the second quarter was very speculative, and there are doubts about the future direction." He added, "It will be difficult for companies to maintain high earnings growth rates, and U.S. stocks still appear expensive compared to other stock markets."

Tim Murray, investment strategist at T. Rowe Price, also explained, "Expected earnings growth will balance with the increased stock valuations. This means that when corporate earnings exceed expectations, the index rises less, and when earnings fall short of expectations, it declines more."

Kelly expects downward pressure on corporate earnings growth rates in the future. He said, "Wage increases are not temporary. The Federal Reserve's efforts to lower unemployment will raise wages and burden corporate profit margins."

The possibility of tax increases under the Joe Biden administration also burdens corporate earnings.

Ray Alcorn, senior investment strategist at BNY Mellon Investment Management, said, "Corporate net income has probably peaked. As the market reflects expectations of future tax increases, earnings growth expectations will decline, and these factors will be reflected in the stock market in the fourth quarter."

This content was produced with the assistance of AI translation services.