The S&P 500 Index (SP: .INX) notched another new all-time high on Wednesday (overnight Aussie time).
The benchmark US stock market index closed up 0.7% to 5,792.0 points. This marks the 44th new record closing high for the S&P 500 this year and brings the index’s total gain up to 33.6% over 12 months.
While the S&P/ASX 200 Index (ASX: XJO) hasn’t returned quite as much, the Aussie benchmark index has also recorded a series of record highs this year. Most recently, on 30 September, the ASX 200 closed at an all-time high of 8,269.8 points, also hitting a new intraday high of 8,285.7 points on the day.
Currently at 8,236.4 points, the ASX 200 is up 17.0% over 12 months and within 0.4% of its record close.
As for the US stock markets…
Can the S&P 500 keep charging higher?
The S&P 500 has been catching tailwinds on a number of fronts.
First, investor spirits were lifted by the recent 0.50% cut in interest rates by the US Federal Reserve. The Fed opted for the supersized reduction with inflation in the world’s biggest economy finally looking to be in rapid retreat.
Falling inflation in itself has also helped support US stocks.
Other factors helping lift the US markets are relatively resilient company earnings, particularly from the AI-boosted tech sector, and hopes that the US economy is on track to avoid a recession and pull off the so-called ‘soft landing’.
As for what’s ahead for the S&P 500, JP Morgan is taking a more optimistic view in light of increasing stimulus measures and falling interest rates in the US and EU.
Commenting on further potential easing from the Fed, JPMorgan chief market strategist Dubravko Lakos-Bujas said (quoted by The Australian), “If so, the sluggish business cycle could more decisively shift back into recovery, as could animal spirits and inflation with upside to the procyclical trade.”
The investment bank said that US household wealth has increased by some US$10 trillion over the last 12 months to now stand at around US$165 trillion. It expects S&P 500 earnings growth to increase from 3% annually, which we’ve seen over the past two years, to 12% annually for the next two years.
According to Lakos-Bujas:
US corporates have been increasingly focused on recycling pre-tax income into investment spending rather than returning after-tax profits to shareholders through buybacks, which is also helping to stimulate the economy.
In an all-out AI arms race, Mag-7 are accelerating investment spending to about US$500 billion on capex and R&D per year.
Should Fed rate cuts come in below expectations, the S&P 500 could still continue to march higher, partly on the strength of the US tech sector.
“In particular, we highlight the artificial intelligence, data centres, and electrification theme as a relative outperformer in this [higher for longer interest rate] scenario,” Lakos-Bujas said.