How high can the S&P 500 go?
“Our best guess is that an S&P 500 peak of near 3000 is possible should the U.S. expansion prove to have five or more years left to it,” according to Morgan Stanley’s Chief Equity Strategist Adam Parker and economist Ellen Zentner in a recent report.
Of course, getting that expansion to last is no simple feat, Parker explained early Tuesday on CNBC.
“Our phrase for this … is hubris and debt,” Parker said. “If you don’t see a lot of hubris and you don’t see a lot of debt, it’s hard to call that top of the cycle.”
He and other Morgan Stanley (MS) analysts are tracking capital spending, hiring, debt, interest cover and inventory – which look good.
“Look at the evidence,” explained Parker. It points to “a pretty prolonged expansion. If you get mid-single-digit earnings growth every year for the next several years, we can get a lot higher on the S&P. It could be the longest expansion ever.”
The analyst admits that a continued expansion and market bull run depend on many conditions going well, of course, and a slowdown in China or Europe not coming to fruition.
“The world is a risky place,” Parker admitted.
However, “Look at how uncorrelated the GDPs are around the world are today. And look at the debt stack and interest coverage on it.”
For the S&P to hit 3,000 and the expansion to continue for another five years, the experts say 6%-per-annum earnings growth must continue and the price-to-earnings ratio of 17 times needs to remain steady.
This is what concerns Wharton finance professor Jeremy Siegel.