Last week, the Dow Jones Industrial Average hitting 40,000 was a significant milestone for investors. However, top Wall Street forecaster Ed Yardeni sees even greater gains ahead, driven by earnings.
Ed Yardeni, chief investment strategist at Yardeni Research, informed clients that the DJIA could rise by 50% to 60,000 by 2030, with the S&P 500 potentially reaching 8,000. The Dow closed above 40,000 for the first time on Friday.
This projection represents a 7% compound annual growth rate for the Dow and 7.1% for the S&P 500.
Yardeni noted, “That target could be achieved with a forward P/E of 20 and forward earnings at $400 per share, up 60% from an estimated $250 per share this year. We think that’s possible in our Roaring 2020s scenario.”
Yardeni’s Roaring 20s scenario assumes the S&P 500 companies will achieve annual earnings per share growth of at least 8.8%, the historical average since 1936. If the growth rates of nominal and real GDP exceed their post-1940s averages of 6.3% and 3.1%, respectively, EPS growth could accelerate.
Yardeni explained, “That could happen if productivity grows faster than its 2.0% average since 1951, as we expect in our Roaring 2020s scenario. Better-than-expected productivity growth would result in better-than-expected real GDP growth, lower unit labor costs, higher wages relative to prices, and boosted profit margins.”
Industry analysts are increasingly optimistic, with consensus revenue and earnings estimates implying projected profit margins of 12.6% this year, rising to 13.6% and 14.4% over the next two years.
Last December, Yardeni predicted the S&P 500 would reach 6,000 within two years. He accurately forecasted a rally for the index last year, and his 5,400 target for the S&P 500 for 2024 remains one of the highest on Wall Street.
