ROI-Wall Street bulls try on ‘S&P 10,000’ caps for size: McGeever

Is it too early to start ordering "S&P 10,000" caps? Maybe, but not ​by much. The S&P 500 index has skyrocketed in recent years, powered by an historic artificial intelligence spending boom, ​enormous fiscal stimulus injections, and still-loose financial conditions. It could cross 8,000 points in a ‌matter ​of days. Once that benchmark goes, the psychologically important 10,000 target suddenly doesn't seem so far away.

How long it will take to get there is anyone's guess. But Roundhill Investments, an exchange-traded fund (ETF) firm, is attempting to narrow it down to a specific day. Roundhill, whose assets under management are currently just under $40 billion, has just launched its “XX S&P 500 Target 10,000 2030” ETF, ‌which will invest all of its assets in long-dated call options that will pay investors "substantial" gains if the benchmark index is above the 10,000 level on January 10, 2030. Ed Yardeni, president of Yardeni Research, has long held that 10,000 will be reached by the end of this decade. He recently turned more cautious on the near-term outlook, pushing back his S&P 500 target of 8,400 from year-end 2026 to mid-2027, but he is standing by his “10,000 by end of the decade” call.

These target dates are just over three years away. ‌Is that enough time for the index to rise roughly 30%? It is ambitious, but certainly not impossible, especially if the third quarter corporate earnings season, which gets underway this week, is anywhere near as strong as the last one. RIGHT AND 'WRONG'

While “S&P 10,000” ‌may still sound slightly fanciful, it’s far easier to envisage than “Dow 40,000” was in June 1999, when investor David Elias published his now-famous book "Dow 40,000: Strategies for Profiting from the Greatest Bull Market in History". At the time of publication, the Dow Jones Industrial Average was around 11,000 points and in the latter stages of the internet-boom-fueled rally that had seen the index treble in the previous six years. Elias predicted it would reach the historic 40,000 milestone by 2016. He was off by eight years.

The Dow hit its dotcom peak of 11,750 points in January 2000, before crashing. It did not revisit those levels for nearly seven years. As ⁠for 40,000? The ​Dow did hit that mark, but financial TV anchors and traders on ⁠the floor of the New York Stock Exchange had to wait until 2024 to finally dust off and don their "Dow 40,000" caps. Elias was right about the number, but in markets, being that late is the same as being wrong.

So what about today’s bull market? The root of Yardeni's and others' confidence ⁠can be summed up in one word: earnings. US corporate profits grew by more than 50% in the second quarter, and are expected to grow by more than 35% in the third. Earnings are the "glue" holding everything together, according to Manish Kabra at Societe Generale. He reckons earnings per share (EPS) ​will be $400 by the end of the year, notably higher than the current LSEG consensus of $363.50.

This puts the S&P 500 at 8,000 points at the end of this year. The arithmetic is simple. Multiply 400 by 20 — the ⁠forward price/earnings ratio the market is currently trading at — and you arrive at Kabra's year-end base case of 8,000 points. Kabra's "big bull" scenario — Treasury yields nearer 4%, oil back down to $80 per barrel, and US hyperscalers' free cash flow turning positive — could see the S&P 500 reach 10,000 by the end of next year, he says. CONCENTRATION RISK

If ⁠that ​historical peak is to be reached soon, the US economy will probably need to stay resilient and avoid recession. If you exclude the anomalous COVID-19 downturn, the US economy hasn't been in recession for almost two decades. How long can this luck hold out? Recessions and severe market downturns are almost always precipitated by rising borrowing costs, so investors ignoring the recent increase in the US rate structure across the curve do so at their peril.

There are also plenty of market-specific reasons to be cautious: the concentration in ⁠AI and related stocks is at record levels, and market breadth is the worst in a quarter of a century. This is unsustainable, right? Finally, the “Dow 40,000” saga should also give investors serious pause. The S&P will reach 10,000 eventually, but there will ⁠be little reason to celebrate if it takes a decade and ⁠a major correction to get there.

Memories on Wall Street are notoriously short, however. If third-quarter earnings are hot, it may not be too long before "S&P 10,000" caps make an appearance on the NYSE floor. (The opinions expressed here are those of the author, a columnist for Reuters)

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(By Jamie McGeever, Editing by Tomasz Janowski)