October 21, 2024
S&P 15,000 by 2030?
Dear Reader,
As we drift deeper into the final quarter of 2024, three financial phenomena are colliding.
We’re nearly two years into a bull market that’s charged higher despite prolonged inflation and interest rate rises.
Now, interest rates are falling.
Corporate earnings are up.
And yet, recession fears linger.
The market is pricing in a recession at 35% probability.
Thom Benny
@The_Benchmark_
Not out of the woods. Bears remain close. https://twitter.com/KobeissiLetter/status/1846553207239000329
The Kobeissi Letter
@KobeissiLetter
BREAKING: The market is now pricing in a 35% chance of a recession in the US within the next 12 months.
This is down from ~50% seen several months ago but still above the historical average.
Among different indicators, next 12-month Fed interest rate policy expectations imply… https://x.com/i/web/status/1846553207239000329
4:8 PM • Oct 16, 2024
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Plenty of fear. Plenty of greed.
Which will prevail, and for how long?
Right now, there are three distinct visions are emerging for how the stock market might perform for the next 10 years.
As ever, the bull, the bear and the middle ground.
Here they are.
The bull case: Riding the
AI and demographics wave
Fundstrat’s Tom Lee presents an optimistic outlook, projecting the S&P 500 to surge beyond 15,000 by 2030.
That’s more than double its current level.
What’s got this bull so charged up?
Three main things:
Millennial spending wave: Historically, stock market upswings have coincided with growth in the 30-50 age group. Lee sees the rising economic influence of millennials entering their prime spending years driving stocks higher.
Tech filling labour shortages: He expects U.S. tech spending to skyrocket, potentially pushing the tech sector’s weight in the S&P 500 from 30% to 50%. Lee anticipates a surge in technology investment, particularly in AI, to address global labour shortages.
Flood of money into the U.S.: As companies worldwide invest heavily in technology, Lee predicts increased capital flows into the U.S. — strengthening its dominant position as a hub for leading tech firms.
Were these projections to materialize, the market’s annual returns could compound in the high teens. Bullish indeed.
But that’s just one view. What about the other side of the coin?
The bear case: Stagnation
and geopolitical risk
On the other end of the spectrum, some analysts, including those at JPMorgan, paint a more cautious picture, at least for the rest of this decade.
Their concerns include:
Can’t go much higher: Many think current equity valuations are stretched, and that there’s little room left to run higher.
War worries: Prolonged, high-stakes global conflict makes analysts nervous about whether the stock market can continue climbing.
Recession Fears: The Fed has just lowered interest rates, but recession fears remain alive and well. Bears don’t see the economy as out of the woods yet.
Under this scenario, the market might struggle to make gains, potentially remaining range-bound or even declining over the next few years.
Grim. But, like all these viewpoints, far from a sure thing.
The middle ground: Emerging
markets take the lead
Goldman Sachs presents a more nuanced view of what lies ahead for stocks.
They see a shift in global market dynamics, and don’t focus only on U.S. markets.
Key points from their forecast:
A bigger share for emerging markets: They project emerging markets’ share of global equity market capitalization to increase from 27% currently to 35% by 2030. That would be a significantly larger slice of the global market cap, which currently sits around $109 trillion.
U.S. market share decline: While emerging markets could increase their share, the U.S.’s could fall from 42.5% today to 35% by 2030.
India’s leading the charge: Goldman Sachs predict India will have the largest increase in global market cap share, potentially reaching 8% by 2050.
This view suggests that while U.S. markets may not see explosive growth, the global investment landscape could offer significant opportunities, particularly in emerging markets.
This gives you an idea of how far these markets potentially have to run.
In other words, while backing U.S. tech stocks today seems like the smartest play, perhaps that won’t be the case 10 years from now.
Basically, this view is ‘things could change’ — which, to be honest, isn’t much of a view at all.
Give me a strong for or against any day.
Another record high, but for how much longer…
While we’re fans of taking the long view here at The Benchmark, we don’t advocate taking your eye off the ball in the short term, either.
Phil Rosen over at The Opening Bell Daily pointed out last week that, having just hit its 46th record high of the year, the S&P 500 could have the best part of a year left to run to its bull market high.
According to the Wall Street Journal, the market historically takes 709 trading days to hit its bull market high.
This current bull run — which started on October 12, 2022 — is just over 500 trading days old.
That would imply there’s just over six months left of rising stock prices.
If only the past were a reliable guide to future events.
(It’s not — do your own research and understand the risks, always.)
Quote of the week
‘The individual investor should act consistently as an investor and not as a speculator.’
— Benjamin Graham
That’s it for The Benchmark this week.
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Invest in knowledge,
Thom
Editor, The Benchmark
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