The U.S. stock market continues to show strong “earnings momentum,” with the S&P 500 potentially reaching 6,000 in 2024, according to DataTrek Research. Following the Federal Reserve’s recent interest-rate cuts, this target seems achievable given the current market levels.
On Monday, the S&P 500 index hit a fresh record high, closing at 5,718.57, based on FactSet data. Nicholas Colas, co-founder of DataTrek, commented that contrary to bearish opinions, growth isn’t limited to just technology and artificial intelligence. “Multiple sectors are contributing to earnings growth,” he said in a note.
Analysts expect the S&P 500’s earnings per share to grow by 15.2% next year, compared to 10% this year. The growth is spread across sectors, with cyclical industries like energy, materials, and industrials showing the most promise. FactSet data projects earnings to rise to $258 per share over the next four quarters, a 12% increase.
With the Fed now in “easing mode” and the U.S. economy still growing, Colas believes the path forward for stocks is likely upward. The S&P 500 currently trades at 22.1 times forward 12-month earnings, higher than its 5-year average of 19.5 but below its 2020 peak of 23.2. According to Colas, the 6,000 target represents a “peak confidence” estimate based on strong earnings potential.
S&P 500 Climbs After Fed Rate Cut
The S&P 500 surpassed its previous record from September 19, which came just after the Federal Reserve announced a significant rate cut of half a percentage point, marking the start of its current easing cycle.
John Madziyire, head of U.S. Treasuries at Vanguard, noted that the probability of a “soft landing” for the economy has improved as inflation eases under tighter monetary policy. He sees the Fed’s recent rate reduction as a recalibration toward a neutral benchmark rate of around 3%, compared to the current range of 4.75% to 5%.
Interest rates have generally declined this year, with the 10-year Treasury yield finishing at 3.74% and the two-year rate at 3.576% on Monday. Colas emphasized that the S&P 500 reaching 6,000 is “hardly a stretch” given rising corporate earnings and lower interest rates, representing a 5.2% gain from last Friday’s close.
The broader U.S. stock market also advanced Monday, with the S&P 500 rising 0.3%, while the Nasdaq Composite and Dow Jones Industrial Average both gained 0.1%. The Dow closed at a new all-time high.
