Why S&P 500 rising to 6,000 is 'hardly a stretch' as stocks clinch new record

By Christine Idzelis

S&P 500, Dow notch fresh all-time highs Monday

The U.S. stock market appears to have "earnings momentum" over the next year, with an S&P 500 price target of 6,000 in 2024 not much of a stretch from its current level after the Federal Reserve last week began its interest-rate cutting cycle, according to DataTrek Research.

The S&P 500 index SPX , a gauge of U.S. large-cap stocks, clinched a fresh record high Monday, closing at 5,718.57, according to FactSet data.

"Contrary to popular opinion in some bearish circles, it's not just" technology and artificial intelligence generating the S&P 500's earnings growth, DataTrek co-founder Nicholas Colas said in a note emailed Monday. "Many groups should pull their weight, and then some, over the next year."

Wall Street analysts expect the S&P 500 index's earnings per share to grow 15.2% next year, stronger than this year's 10% growth, according to DataTrek. "Expected S&P 500 earnings growth over the next year is widely distributed across sectors and is most pronounced in cyclical groups like energy, materials, and Industrials," Colas found, citing FactSet data for calendar year 2025 in the chart below.

With the Federal Reserve now in "easing mode, even as the U.S. economy continues to grow nicely," the path of least resistance for stocks is probably higher, Colas said. As for corporate earnings expectations, Wall Street analysts' estimates for the S&P 500 " bubble up" to $258 per share over the next four quarters - a roughly 12% increase from the last four quarters, he said.

Meanwhile, the S&P 500 trades at 22.1 times forward 12-month earnings estimates, a multiple that is "rich" relative to its 5-year average of 19.5 and 10-year-average of 18 but below the 2020 peak of 23.2, according to DataTrek.

"The upshot here," said Colas is that S&P 500 at 6,000 "is something of a 'peak confidence' price target based on an optimistic but achievable estimate of near-term index earnings power."

S&P 500 record after Fed rate cut

The S&P 500 rose modestly Monday to surpass its previous record peak notched Sept. 19, which was the day after the Fed announced a large interest-rate cut of a half percentage point to start its rate-cutting cycle.

"The soft landing probability has increased," said John Madziyire, senior portfolio manager and head of U.S. Treasuries and TIPS at Vanguard, in a phone interview. The U.S. economy has been resilient, with inflation easing against the backdrop of "restrictive" monetary policy, he said.

"We are basically now just recalibrating back to neutral," he said, referring to the Fed beginning the process of lowering its benchmark rate to a neutral level that neither slows nor stimulates the economy.

The Fed last week reduced its benchmark rate to a target range of 4.75% to 5%. In Madziyire's view, the so-called neutral rate could be near 3%.

Interest rates in the bond market have dropped this year, with yields on 10-year and two-year Treasurys down so far this month and year to date.

On Monday the yield on the 10-year Treasury note BX:TMUBMUSD10Y edged up slightly to 3.74% while the two-year Treasury rate BX:TMUBMUSD02Y finished about flat 3.576% based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.

The S&P 500 getting to 6,000 is "hardly a stretch during a period of rising corporate earnings" and lower interest rates, said Colas, noting that a rise to that level represented a 5.2% gain from its close pricing on Friday.

The U.S. stock market broadly rose Monday, with the S&P 500 SPX closing 0.3% higher while the technology-heavy Nasdaq Composite COMP and Dow Jones Industrial Average DJIA each gained 0.1%, according to Dow Jones Market Data. The Dow also ended Monday at a new all-time high.

-Christine Idzelis

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09-23-24 1633ET

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