Last week’s 40,000-point mark on the Dow Jones Industrial Average was a big deal for investors. But thanks to earnings, a top Wall Street analyst thinks even bigger gains are on the way.
Ed Yardeni, chief investment strategist at Yardeni Research, told clients in a note that the DJIA was on track to rise 50% to 60,000 by 2030 and that the S&P 500 SPX could rise to 8,000. Friday was the first time ever that the Dow closed above 40,000.
The Dow has grown at a rate of 7% per year, while the S&P 500 has grown at a rate of 7.1% per year.
“That goal could be reached with a forward price-to-earnings ratio of 20 and forward earnings of $400 per share, which is 60% more than this year’s estimated $250 per share.” We think that’s possible in our “Roaring 2020s” story, Yardeni said.
Yardeni’s “Roaring 20s” scenario assumes that the earnings per share of all S&P 500 companies grow by at least 8.8% per year, which is the average rate seen since 1936. If nominal and real GDP growth rates are higher than their averages of 6.3% and 3.1% since the 1940s, that EPS growth could speed up.
“That could happen if productivity grows faster than the 2.0% average seen since 1951,” Yardeni said. “This is what we expect to happen in our Roaring 2020s scenario.
“GDP would grow faster than expected if productivity growth was better than expected.” The rate of inflation would go down because unit labor costs would go down. Prices could go up more slowly, but wages could go up faster. “It would help the bottom line,” he said.
Yardeni said that more and more industry analysts are becoming as optimistic as he is. According to their average estimates of revenue and earnings, the company will make 12.6% this year and 13.6% and 14.4% over the next two years.
The strategist said in December of last year that the S&P 500 would reach 6,000 in two years. Last year, he was right when he said the index would go up, and his 5,400 target for the S&P 500 for 2024 is one of the highest on Wall Street.
