{"id":70394,"date":"2023-10-09T01:24:13","date_gmt":"2023-10-09T05:24:13","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/heres-when-the-sp-500-could-hit-10000-what-stocks-could-get-it-there\/"},"modified":"2023-10-09T01:24:15","modified_gmt":"2023-10-09T05:24:15","slug":"heres-when-the-sp-500-could-hit-10000-what-stocks-could-get-it-there","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=70394","title":{"rendered":"Here’s When the S&P 500 Could Hit 10,000. What Stocks Could Get It There."},"content":{"rendered":"
\n
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Hope for the transformative power of technology has been behind much of the
\n S&P 500
\n \u2018s rally this year. And tech will be key in pushing the index the next 5,000 points higher\u2014and to make stocks worth owning over safer assets, DataTrek Research says. <\/p>\n

The tech sector\u2019s Magnificent Seven\u2014namely Apple\u00a0(ticker: AAPL),\u00a0Amazon.com\u00a0(AMZN), Google parent\u00a0Alphabet\u00a0(GOOGL),\u00a0Facebook\u00a0parent\u00a0Meta Platforms\u00a0(META),\u00a0Microsoft\u00a0(MSFT),\u00a0Nvidia\u00a0(NVDA), and\u00a0Tesla\u00a0(TSLA)\u2014have been the main driver for the stock market\u2019s 12.2% gain in 2023. Bulls argue artificial intelligence is only in the early stages of boosting productivity and profit. Consensus earnings estimates for big tech\u00a0<\/strong>have been climbing, as disrupters reap the benefits of their innovation. \u00a0<\/p>\n

\n

But the market is already pricing in a Goldilocks outcome for the broader economy\u2014one that most strategists wouldn\u2019t have predicted at the start of the year\u2014with continued growth, cooling inflation, and smooth Federal Reserve execution so far. That means it will take something beyond macro factors to propel stocks higher\u2014and to push investors to keep buying stocks when towering bond yields offer stiff competition.<\/p>\n

With the 10-year Treasury yielding 4.7%, there\u2019s certainly an argument for owning bonds. Investors might be tempted to go all in on them\u2014or even just to hold cash, given high interest rates\u2014even if they know stocks will likely outperform in the long run.<\/p>\n

\u201cA question we frequently get from clients in the current interest rate environment is, \u2018Why invest at all?,\u2019\u201d Mark Haefele,
\n UBS
\n chief investment officer of Global Wealth Management, wrote in a recent note. \u201cWhile returns from stocks and bonds may be uncertain over the short term, we expect them to prove durable over the long term\u2026Cash is not an attractive long-term investment.\u201d <\/p>\n

But with virtually zero-risk Treasuries sporting elevated yields, the S&P 500 would have to more than double over the next decade\u2014to above 10,000\u2014to compensate investors for the risk of owning equities, DataTrek Research co-found Nicholas
\n Colas
\n says.<\/p>\n

By adding the 10-year Treasury\u2019s 4.7% yield to the 4.5% equity risk premium (as calculated by New York University\u2019s Aswath Damodaran) for U.S. large-cap stocks, Colas says the lowest annual compounded return that stock investors should accept over the next decade is 9.2%. If the S&P 500 does compound 9.2% annually over the next 10 years, it will reach 10,000 by 2033, Colas wrote Friday.<\/p>\n

Of course, that\u2019s a high bar, as Colas notes. S&P 500 companies\u2019 earnings have compounded at an average annual rate of 6.3% over any 10-year period from 1998 to today, with plenty of variability year to year. With earnings\u2014the main driver of stock prices\u2014already near record highs, it seems valuations will also need to expand to bring the index to 10,000. That is where innovation comes in.<\/p>\n

In that sense, \u201cproductivity-enhancing technology like generative AI cannot come soon enough for U.S. corporate profits,\u201d Colas writes.\u00a0<\/strong><\/p>\n

That extra push toward 10,000 would likely have to come from tech, he says. <\/p>\n

\u201cSince we can\u2019t rely on earnings growth to easily propel U.S. large caps above their required rate of return above risk-free Treasuries, valuations will have to expand in order to achieve that goal,\u201d Colas concludes.\u00a0\u201cThis will come down to seeing a handful of powerfully disruptive and highly profitable companies scale their businesses and, as a result, earn outsized valuations.\u201d<\/p>\n

As the Magnificent Seven this year\u2014and Big Tech over the past decade\u2014show, investors really only need a small number of names to power long-term gains, although the more the better. \u00a0<\/p>\n

Capital Economics senior markets economist Thomas Mathews made a similar argument for just how much the stock market needs tech to move significantly higher.<\/p>\n

\u201cIf there are to be further\u00a0big<\/em>\u00a0gains, we suspect they\u2019ll have to come from something other than continued economic resilience,\u201d he wrote. \u201cOne candidate for this is enthusiasm about new technology, such as AI or superconductors, which could plausibly boost equity valuations.\u201d<\/p>\n

In other words, even after this year\u2019s rally, tech\u2019s work isn\u2019t done.<\/p>\n

Write to Teresa Rivas at teresa.rivas@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Hope for the transformative power of technology has been behind much of the S&P 500 \u2018s rally this year. And tech will be key in pushing the index the next 5,000 points higher\u2014and to make stocks worth owning over safer assets, DataTrek Research says. The tech sector\u2019s Magnificent Seven\u2014namely Apple\u00a0(ticker: AAPL),\u00a0Amazon.com\u00a0(AMZN), Google parent\u00a0Alphabet\u00a0(GOOGL),\u00a0Facebook\u00a0parent\u00a0Meta Platforms\u00a0(META),\u00a0Microsoft\u00a0(MSFT),\u00a0Nvidia\u00a0(NVDA), and\u00a0Tesla\u00a0(TSLA)\u2014have […]<\/p>\n","protected":false},"author":1,"featured_media":70395,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-70394","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nHere's When the S&P 500 Could Hit 10,000. What Stocks Could Get It There. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Hope for the transformative power of technology has been behind much of the S&P 500 \u2018s rally this year. 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