The US-based S&P 500 Index (SP: .INX) has outperformed all international markets so far in 2024, having lifted 20% in that time.
With so much going on in the background – the United States election, geopolitics, fiscal deficits – the index has consistently set new highs this year.
Markets are forward-looking – the US is no different. With the index down 2% this past week, what's next in store for the index? Let's see what the experts say
Any upside left for the S&P 500 in 2024?
The S&P 500 index represents the largest 500 publicly traded companies on the US stock market. It is the US equity benchmark (and arguably the world's benchmark, too), comprising about 80% of the total capitalised value of the US market.
Morgan Stanley's US equity strategist, Mike Wilson, believes the index could climb approximately 6% –7% by year-end.
The strategist has more conviction on this if investor sentiment recovers following the US presidential election, set for this week, according to Bloomberg.
Wilson suggests that if market conditions remain favourable, the S&P 500 could reach as high as 6,100 before year-end.
With the US equity benchmark currently trading near 5,712 points, reaching 6,100 would represent an almost 7% increase.
However, Wilson also cautions that high valuations and limited growth prospects make further gains unlikely, especially as we approach 2025. Speaking to Bloomberg Surveillance yesterday, Wilson added:
I think we could see 6000 [points] potentially, you know, in some sort of a clearing event that isn't now a lot of consternation if people feel good about things.
But then I think it's really hard for us to get past 6,100 in any scenario because then you're I mean, you're so stretched on valuation and I don't see growth accelerating and in a kind of way which would justify even higher multiples for 2025.
Safe to say there's an element of uncertainty in the next direction of the S&P 500.
What about the long term?
Goldman Sachs recently released a forecast that paints a more subdued long-term outlook for the S&P 500.
We've just left a decade that produced an average of 13% returns each year.
However, Goldman predicts the S&P 500's return will drop to just 3% per year over the next ten years. This highly conservative forecast considers several factors.
For one, it looks at the index's valuation, which is currently high compared to history. Specifically, its cyclically adjusted price-to-earnings (CAPE) ratio is 38 times earnings, which is near highs seen at previous market downturns.
David Kostin, Goldman's chief US shares strategist, notes that high starting valuations often imply lower forward returns.
And it makes sense. You pay $1 for a widget, it increases to $2, and you sell. That's a $1 gain but a 100% pre-tax return on investment.
If you take that same $1 return but instead pay $8 for the widget and sell it at $9, you're only booking a 12.5% return before tax.
Alas, with the S&P 500's CAPE ratio currently at the 97th percentile since 1930, Goldman says that investors may need to temper their expectations.
Foolish takeaway
There are clearly diverging views on the S&P 500 index's next steps. In the near term, there's support for it to extend higher by year's end.
Beyond that, if some forecasts are correct, it could be a very quiet decade on Wall Street.
Time will tell what the situation is, but ultimately, the long-term state of the underlying businesses appears to be robust.
