(Bloomberg) — There’s little reason for stock bulls to have an epiphany with the S&P 500 almost doubling from its pandemic lows. But they do have several motives to keep their faith in the equity market.
“Earnings have been on fire,” Ed Yardeni, the president of his eponymously named research firm, said on Bloomberg TV’s Surveillance Thursday. “My bullishness is based on my perception that there’s no recession ahead, there’s no credit crunch ahead, and there’s still higher earnings ahead.”
With a nod toward history, the Wall Street veteran called the current era “The Roaring 2020s,” and affirmed his forecast for the index to reach 5,000 by the end of next year — a 12% increase from Thursday’s close.
“But 5,000 is actually a fairly conservative outlook. It’s the end of next year,” he said. “There’s plenty of times for earnings to grow along that time.” He pointed to rising productivity helping to drive growth. Productivity “is up 2%,” Yardeni said. “I think it’s going to 4%.”
Another stock-market bull, David Kostin, the chief U.S. equity strategist at Goldman Sachs Group Inc., sees the S&P 500 at 4,700 at year end on the way to 4,900 by the close of 2022. The index closed at of 4,460.83 on Thursday.
“The U.S. economy will be in nominal terms around 8% higher this year than pre-pandemic 2019,” Kostin said in a Surveillance interview. “Sales for the S&P 500 companies will be 15% higher and earnings will be 34% higher. That is a representation of the operating leverage that exists in so many companies.”
The return from equities is difficult for investors to ignore, he said.
“The opportunity set for investors in other asset classes is really not very attractive,” Kostin said. “Equities become the proverbial term — there is no alternative. This is sort of a money flow story about why there is likely to be persistent demand for U.S. stocks. And that’s likely to push the market higher.”
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