The S&P 500 index has been enjoying a strong run, achieving a 3% gain in July. And the good news is, this positive trend is expected to continue through 2024.
One of the factors contributing to the index’s gains is the decline in inflation and the near-end of rate hikes by the Federal Reserve. These favorable conditions not only have the potential to boost the economy, but they also alleviate concerns of a severe downturn. Additionally, the gross domestic product has been performing better than anticipated, providing further reassurance.
The positive earnings results have also played a crucial role in driving the index’s performance. Companies have largely outperformed expectations this year, providing essential support to stock prices.
Although the second-quarter results may appear lackluster when compared to the previous year, it is essential to consider the bigger picture. The S&P 500, as a whole, has experienced flat sales growth and lower profit margins due to increased costs. However, analysts predict that sales will continue to grow, and profit margins will expand in each subsequent quarter as costs stabilize.
This means that if companies can consistently achieve or exceed their financial targets, it will propel the stock market even higher. Analysts are already projecting significant earnings growth for the aggregate S&P 500 next year, according to FactSet. As stocks reflect these anticipated profits leading up to 2024, they are likely to experience considerable gains this year.
In fact, DataTrek comprehensively analyzed year-end price targets set by analysts for every company on the index. The overall target level for the S&P 500 was estimated to exceed 4900, reflecting a potential 7% increase from its current level of about 4590.
Moreover, DataTrek took a technical approach in assessing the market outlook. They argue that given the strong market sentiment and the current economic landscape, the S&P 500 could possibly reach its all-time high by the end of the year.
The index previously reached a peak of 4796 in January 2022, fueled by low interest rates, a growing economy, and increasing earnings. With the market’s expectation of either stable or falling interest rates, alongside continued economic growth and rising profits, hitting a new high by the end of the year could result in an additional gain of almost 5%.
Considering these promising indicators, investing in stocks may indeed yield favorable results.