An increase in productivity would contribute to greater growth in real GDP, would reduce unit labor costs, allow wage increases faster than prices and, ultimately, it would expand profit margins, the strategist maintains.
The recent rise to historical highs of the Dow Jones Industrial Average at 40,000 points represented a notable milestone for investors last week. In that context, one of Wall Street’s most listened to major gurus anticipates even greater benefits on the horizon.
Ed Yardenichief investment strategist at Yardeni Research, told his clients that the index DJIA could rise 50% to reach 60,000 points by 2030. The same way, the S&P 500 could rise to 8,000 points. This past Friday, the Dow closed for the first time in its history above the 40,000 points, says the strategist quoted by the American press.
For the Dow, this increase would imply a compound annual growth rate of 7%, while the S&P 500 would grow at an annual rate of 7.1%. Yardeni suggests that these goals could be achieved with a P/E of 20 and future earnings of $400 per share, 60% more than the $250 projected for this year. This scenario, which he calls the “Roaring 2020s,” is based on the assumption that S&P 500 companies will see earnings per share growth of at least 8.8% annually, the historical average since 1936.
Yardeni highlights that if the growth rates of the nominal and real US Gross Domestic Product (GDP) exceed their historical averages of 6.3% and 3.1%, respectively, since the postwarearnings per share could increase even faster. This accelerated growth could occur if productivity exceeds its 2.0% average since 1951, according to Yardeni.
An increase in productivity would contribute to greater growth in real GDP, would reduce unit labor costs, allow wage increases faster than prices and would ultimately widen profit margins.
Wall Street: optimism predominates on the NYSE
Currently, industry analysts are even more optimistic than Yardeni. Consensus revenue and profit estimates suggest profit margins could reach 12.6% this year, rising to 13.6% and 14.4% over the next two years.
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Last December, according to the American press, Yardeni predicted that the S&P 500 would reach 6,000 points within two years. His prediction last year about an index rally was spot on, and his target of 5,400 points for the S&P 500 in 2024 is one of the highest on Wall Street.
Earnings reports from major companies, including Target and other retailers, are expected this week. Nvidia, one of the biggest boosters of the S&P 500, will face questions about its chip launcheswhile Target, Macy’s and others will provide updates on consumer sentiment amid Walmart’s growing dominance.
Other companies reporting this week include Zoom Video Communications, Autozone, Lions Gate Entertainment, Workday and Snowflake.
Source: Ambito
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