Despite concerns about the impressive gains in the stock market during the past three years and extreme spending on artificial intelligence, the broader S&P 500 (SNPINDEX: ^GSPC) is now up roughly 12.3% this year and sits at about 7,756 (as of Aug. 17). Well-known market strategist Ed Yardeni of Yardeni Research thinks more gains are coming. Yardeni recently raised his price target on the S&P 500 to 8,400, implying an additional 8% increase.
If this prediction comes to fruition, the S&P 500 will enjoy its third consecutive year at least 20% gains. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.
For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Nobody knows what will happen, but here are three ways the S&P 500 can continue its strong year and finish at 8,400. Yardeni and many other bulls have long argued that the market will keep going higher as long as earnings continue to grow and beat current estimates while forward estimates keep rising.
Right now, Yardeni says there is simply "fabulous earnings momentum," largely driven by a strong economy. In the second quarter, the S&P 500's earnings rose by more than 50% on an annual basis, according to FactSet. That's with 88% of S&P 500 companies reporting.
Additionally, 76% of companies that reported delivered a positive earnings-per-share surprise relative to average estimates. On Aug. 7, the S&P 500 had a forward price-to-earnings ratio of 20, only slightly higher than the 10-year average of 19. By year-end, Yardeni expects 2027 S&P 500 EPS estimates to top $400, which would pave the way for an 8,000-plus S&P 500 target.
Remember, valuations also rise when growth does, so the market may end up being valued at well over 20 times forward earnings. Another way the market could rise is if there is a real end to the Iran war. Although much of the military action has died down since June, tensions between the U.S. and Iran remain elevated, and there's no clear answer to when the conflict will reach a long-term conclusion.
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