The staff at Capital Economics was among the many most bullish we discovered on the outlook for shares in 2024.
The agency sees the benchmark S&P 500 rising to five,500 by the top of this yr, and including one other 1,000 factors — roughly 18% — by means of the top of 2025, hitting 6,500 in a little bit beneath two years.
In a notice to purchasers printed Wednesday, the agency’s chief markets economist, John Higgins, walked by means of the principle pillars of this forecast as traders have kicked off the yr with some trepidation.
Higgins’s view most easily boils all the way down to an argument that earnings can proceed to rise and AI hype will in the end inflate a inventory market bubble.
Evaluating the circumstances for the market right this moment to people who preceded the tech bubble within the late ’90s, Higgins notes, amongst different issues, that whereas valuations for the market’s tech leaders are elevated, there isscope for valuations to rise additional each for this basket of shares and the market general.
The only means to consider valuations rising is that inventory costs — or the quantity traders pay for every $1 of earnings — rise whereas precise earnings do not.
“Our present end-2024 and end-2025 forecasts for the S&P 500 are 5,500 and 6,500, respectively,” Higgins wrote. “Punchy as these projections might seem, the valuation of the index would solely need to rise to roughly the extent it reached earlier than the dot com bubble burst for them to be [realized] — primarily based on what are suppose are believable outcomes for EPS.”
“Our evaluation leads us to conclude that, offered the economic system skirts a recession, there’s scope for a bubble to inflate within the S&P 500 this yr and subsequent,” Higgins added.
“We envisage the index turning into much more high heavy within the course of, however do suppose that almost all sectors will fare properly even when people who stand to profit essentially the most from the appearance of AI preserve main the cost.”
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