The S&P 500 continues its bullish momentum with a 60% rise in two years, but can it maintain the pace? Here's what experts say.
Introduction
The bull market in the S&P 500 (^GSPC) is now two years old, and analysts believe there’s room for more growth.
Boosted by artificial intelligence (AI) optimism and a resilient US economy, the S&P 500 has surged over 60% since its low point and is nearing an all-time high.
Wall Street strategists suggest the market could keep climbing, with earnings expected to grow and the Federal Reserve anticipated to cut interest rates.
S&P 500 Performance and Market Projections
Officially declared in June 2023 when the index rose 20% from its bear market low, this bull market is still considered young, according to historical data.
Bull markets typically last around 5.5 years, with gains averaging 180%. So far, the S&P 500 has delivered a 60% return, which suggests further growth potential.
Strategists from top firms remain optimistic. BMO Capital Markets raised its year-end target for the S&P 500 to 6,100, while Goldman Sachs now expects the index to hit 6,000 by the end of 2024 and 6,300 within 12 months.
However, experts like Goldman’s chief equity strategist David Kostin have warned that high stock valuations could limit gains in 2025.
Market Risks and Valuation Concerns
While the outlook is mostly positive, some experts caution that high valuations may temper the rally.
Kevin Gordon, senior investment strategist at Charles Schwab, noted that current price-to-earnings ratios are comparable to those seen during the 2021 market peak and the dot-com bubble.
Still, high valuations alone aren’t enough to end a bull market. According to Piper Sandler’s Michael Kantrowitz, it usually takes a major catalyst, such as a spike in interest rates or rising unemployment, to trigger a significant market downturn. With inflation under control and unemployment steady, no clear downside risks are in sight.
Expert Insights: Earnings and AI Driving the Market
For the bull market to continue, experts emphasize that future stock gains will depend heavily on earnings growth.
The S&P 500 is projected to see nearly 10% earnings growth in 2024 and 15% in 2025, according to consensus estimates. The key challenge for investors will be identifying sectors with accelerating earnings rather than steady growth.
AI remains a central theme in market growth. The “Magnificent Seven” tech giants have led the charge, but analysts like Citi’s Scott Chronert believe the AI boom will soon benefit companies outside the tech sector, helping them improve margins and profitability.
For AI’s influence to sustain market gains, companies beyond chipmakers and cloud service providers must demonstrate real results over the next few years.
Conclusion
As the S&P 500 bull market enters its third year, Wall Street remains bullish, with expectations of continued growth fueled by strong earnings and AI-driven innovations.
However, elevated valuations and potential market shocks could pose challenges. Investors should keep a close eye on earnings reports and broader economic indicators to gauge where the market is headed.
