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Ed Yardeni predicts that the S&P 500 will reach 8,000 by 2030.
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Yardeni’s prediction is based on a simple analysis of historical growth rates.
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His bullish forecast is supported by a “Roaring 2020” scenario in which productivity grows.
There’s a simple reason why one of Wall Street’s most optimistic strategists expects the stock market to continue rising in the coming years: compound interest.
In a note on Thursday, Yardeni Research founder Ed Yardeni published a long-term chart of the Yardeni Index. Standard & Poor’s 500 Includes the likely future path of the index based on compound annual growth rates.
At a compound annual growth rate of 6% to 7%, the S&P 500 is on track to reach 8,000 by 2030, representing a potential upside of about 40% from current levels.
Yardeni’s simple math-based forecast is not outlandish when one considers that the S&P 500’s long-term annual growth rate is about 10% before inflation, and has been about 13% higher over the past decade.
Continued earnings growth, favorable US demographics, and ongoing technological innovations have been some of the reasons the S&P 500 has risen, and these factors should support a stock market rally in the coming years.
“The S&P 500 stock price index is driven by earnings per share (EPS), which have mostly grown between 6% and 7% since the 1950s,” Yardeni said.
“Earnings per share could double to $400 by the end of the decade in our Roaring Twenties scenario,” he added.
Yardeni Research I outlined a bullish “Roaring 2020” scenario earlier this year. Forecasts call for increased productivity to fuel economic growth while inflation remains low.
If the S&P 500 trades at 8,000 with earnings per share of $400, that would imply a price-to-earnings ratio of 20 times, which is below current levels but slightly above the index’s long-term average.
Finally, interest rate cuts by the Fed should act as another tailwind for stock prices in the coming years, although Yardeni warned that they could add fuel to the fire, triggering a 1990s-style crash that would follow. Economic collapse. Painful relaxation.
“It raised the possibility of a complete collapse, like what happened in the 1990s.” Yardeni said last week. “I think by cutting interest rates by 50 basis points and signaling that they want to do more, based on some recent comments, they are risking overheating a warm economy. The economy is in very good shape.”
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