Is ASX 6,000 within reach?

The index is nearly at 5,500; it’s quite possible we could see it hit 6,000 before the end of the year.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Just how high can the ASX go? It’s a question on everybody’s mind after the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) hit a fresh 52-week high of 5,463 on Wednesday. Amazingly, not only is 5,463 a 12-month high but it is also a five-and-a-half-year high. The last time we were at these levels was in mid-2008 just as the market went into freefall and into the depths of the global financial crisis (GFC).

Assuming the market can break through the psychological barrier of 5,500 in the next few weeks then we would only require a 9% upwards move to hit 6,000. Given the market is currently only up 2% since January, it doesn’t seem far-fetched to suggest that we could be there by calendar year end.

There are of course plenty of reasons to be concerned about the stock market rallying higher with many stocks appearing to be trading on lofty multiples and the outlook for earnings growth and economic growth looking somewhat muted. However there are also plenty of reasons to be positive that the overall market can justify a higher level than five-and-a-half-years ago.

Consider some of the largest constituents of the index. For the year ending 30 June 2008 BHP Billiton Limited (ASX: BHP) reported earnings per share (EPS) of 285 cents per share (cps); for the current financial year (FY) ending 30 June 2014 analyst consensus forecasts have the global miner earning 261 cps. Across at Woodside Petroleum Limited (ASX: WPL),  the oil and gas producer earned 305 cps in FY 2008; in FY 2014 it is forecast to earn 270 cps.

Meanwhile in the banking sector, National Australia Bank Ltd. (ASX: NAB) reported EPS of 261 cps in FY 2008; in FY 2014 analyst consensus expects NAB to earn 268 cps. Turning to a cross-section of the industrial companies amongst the largest constituents they too are forecast to report earnings which could arguably justify the market heading to 6,000. Origin Energy Limited (ASX: ORG) earned 58 cps in FY 2008; come FY 2014 EPS are forecast to increase to 68 cps. Likewise CSL Limited (ASX: CSL) was earning 127 cps in 2008, yet this year is forecast to earn 248 cps.

Foolish takeaway

As the above comparisons highlights, while the resource exposed stocks are struggling to boost their earnings above the levels of five years ago, other financial and industrial companies have surpassed those levels. With the worst of the GFC behind us, even if the economic and earnings recovery continues to be lethargic, stocks could very well continue to shuffle higher. All this suggests the 6,000 level is certainly within reach.

Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »