The S&P 500 has been enjoying a solid run, with a 3% gain in July, and it seems the good times may continue well into 2024.
One of the contributing factors to the index’s gains is the decline in inflation and the Federal Reserve approaching the end of its rate hikes. This positive economic backdrop reduces concerns of a severe downturn, especially since gross domestic product (GDP) has performed better than expected.
Furthermore, earnings have played a crucial role in driving the index’s success this year as they have consistently surpassed expectations, providing support to stock prices.
While second-quarter results might not immediately reflect this trend due to a year-over-year decline, the overall picture for the S&P 500 shows a flat sales growth and lower profit margins primarily due to increased costs. Fortunately, analysts anticipate sales to grow consistently throughout the remaining quarters of the year while costs stabilize, resulting in expanding profit margins.
Consequently, if companies can continue meeting or exceeding financial expectations, it is likely that the stock market will experience further growth. In fact, FactSet reports that analysts are projecting aggregated earnings growth for the S&P 500 next year. As the stock market anticipates these profits ahead of 2024, it is expected to gain momentum this year.
For this reason, DataTrek reveals that analyst year-end price targets for every company on the index place the aggregate target level for the S&P 500 slightly above 4900. This projection implies a potential 7% increase from the index’s current level of approximately 4590.
Additionally, when analyzing the market from a technical standpoint, DataTrek analysts suggest that the S&P 500 could reach near its all-time high by the end of the year. Factors such as strong market sentiment and the current economic landscape support this hypothesis.
The index previously hit a peak of 4796 in January 2022 when interest rates were low and the economy and earnings were growing. Given the current expectation of stable or decreasing interest rates alongside continual economic growth and profitability, achieving or surpassing this high by the end of the year could result in an approximate 5% gain.
Considering these optimistic projections and conditions, investing in stocks may prove to be rewarding.