With two dozen record highs under its belt this year, and corporate profits forecast to continue rising, the S&P 500 looks set to pace a global market rally that could last well into the end of the decade, a key Wall Street analyst noted this week.
Boasting an 11.3% year-to-date advance, the S&P 500 has defied the annual 'sell in May' thesis, which warns of springtime market weakness, to notch the strongest month-of-May gain since 2009.
The benchmark's Monday close of 5,308 points also puts it nearly 10% ahead of the average end-of-year Wall Street forecast, according to Charlie Bilello of Creative Planning.
Better-than-expected corporate earnings, a resilient economy that has powered through recession forecasts, and the longest stretch of inverted Treasury bond yields in history have helped drive the bulk of this year's advance.
Bets on an autumn Federal Reserve interest rate cut, too, have added heft to this year's performance, although traders had anticipated much more help from the central bank earlier in the year.
In fact, the S&P 500 is likely to set another record as the benchmark produces the strongest-ever gains over a gap in Fed rate moves, the last of which came in July 2023 and lifted the benchmark lending rate to a 22-year high of between 5.25% and 5.5%.
Wall Street sees more S&P 500 gains ahead
Wall Street analysts are also playing catchup, with Deutsche Bank and BMO Capital Markets revising their end-of-year targets this week to 5,500 points and 5,600 points, respectively.
Related: Notable Wall Street bear tweaks S&P 500 forecast after record rally
Even one of the market's most vocal bears, Morgan Stanley's Mike Wilson, forecast a near-term peak for the broadest measure of U.S. blue chip shares.
Grudgingly.
"The last couple of months have been a microcosm (of the hard/soft landing debate) as economic growth data have once again cooled after a period of strength, while inflation data have been bumpy," Wilson said as he lifted his S&P 500 target price to 5,400 points.
The market's key volatility gauge, CBOE Group's VIX index, doesn't reflect that concern at all, however. It is trading near the lowest levels since the pandemic, suggesting investors hold little concern for geopolitical risks or major economic developments over the coming weeks.
The VIX index was last marked at 12.45, which suggests traders expect daily swings of 0.78%, or 41 points, for the S&P 500 over the next month. At the height of pandemic uncertainty, the VIX traded at around $66.50.
Longer term, the path to records—and to levels of the Dow Jones Industrial Average that seemed unthinkable even a few years ago—looks relatively smooth, according to Ed Yardeni, chief investment strategist at Yardeni Research.
Roaring '20s, not 'Roaring Kitty'
Yardeni sees what he calls a "roaring 20s" scenario of solid earnings growth, a tech-powered economy, and lower Fed interest rates driving steady gains for both the Dow and the S&P 500 into the end of the decade.
In fact, he's calling for the Dow to hit 60,000 points by 2030, a 50% surge from current levels. He predicts the S&P 500 could be trading at 8,000 points by that time.
"That target could be achieved with a forward [price-to-earnings multiple] of 20 and forward earnings at $400 per share, up 60% from an estimated $250 per share this year," Yardeni wrote in a note to clients earlier this week.
Related: Analyst updates S&P 500 price target after CPI inflation surprise
If a week is a long time in politics, then half a decade is a geological age in financial markets, and Yardeni's forecasts would, of course, need to navigate years of headline risks in order to come good.
More immediately, however, stocks do indeed appear to have a supportive path into the second half of 2024.
The Atlanta Fed's GDPNow forecasting tool suggests a current-quarter growth rate of 3.6%, more than double the estimated pace over the first three months of the year.
A bullish glide path for stocks
Inflation pressures, meanwhile, are finally starting to ease, with core consumer prices slowing to an annual year of 3.6% last month and economists predicting even slower rates over the summer months.
In addition, consumers continue to spend, and a solid labor market — unemployment has remained below 4% for more than two years — supports broader sentiment.
A recent Bank of America employment survey, in fact, showed that nearly half of Americans rated their financial wellness as "good or excellent," up from around 42% in 2023.
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LSEG data, meanwhile, sees collective S&P 500 profits rising 10.4% this year from a year earlier, with a 14.1% advance estimated for 2025.
Data from two closely tracked Wall Street surveys published last week also noted a strong bullish bias. Equity-risk appetite in S&P Global's Investment Manager Index surged to a two-and-a-half-year high, and Bank of America noted that global fund managers were the most bullish on stocks since November 2021.
"All this is happening with the Fed still higher for longer, government-debt levels stretched for the U.S. and abroad, record credit card levels, and extended armed conflicts in the Mideast and Ukraine," noted Louis Navellier of Navellier Calculated Investing.
"While it feels like a Goldilocks situation until earnings start disappointing, the momentum looks to continue the trend," he added.
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