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The team at Capital Economics was the most bullish we found on the stock’s outlook for 2024.
The company expects the benchmark S&P 500 index to rise to 5,500 by the end of this year; another 1,000 points (approximately 18%) will be achieved by the end of 2025, reaching 6,500 points in just under two years.
While investors started the year with some trepidation, John Higgins, the firm’s chief market economist, outlined the main pillars of this forecast in a note to clients published Wednesday.
Higgins’ view boils down to the argument that returns are likely to continue rising and that the AI hype will eventually inflate the stock market bubble.
Comparing today’s market conditions to those before the tech bubble of the late 1990s, Higgins notes that, among other things, while valuations have increased for the market’s tech leaders, there is still room for valuations for both companies to rise further. It is pointed out that there is. A basket of stocks and the entire market.
The simplest way to think of rising valuations is that the stock price, or the amount investors pay per dollar of revenue, rises even though actual profits don’t.
“The current forecast for the S&P 500 index at the end of 2024 and 2025 is 5,500 and 6,500, respectively,” Higgins wrote. “These predictions may seem far-fetched, but for them to occur, it would be enough to increase the index’s valuation to roughly the level it reached before the dot-com bubble burst.” [realized] — Based on possible outcomes for EPS. ”
“Our analysis leads us to the conclusion that there is room for a bubble to inflate in the S&P 500 this year and next if the economy avoids recession,” Higgins added.
“While we expect the index to become even more top-heavy in the process, we think most sectors will do well, even if those likely to benefit most from the emergence of AI continue to lead the way. ”
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