CFRA Forecasts an 8% Uptrend in S&P 500 Supported by Earnings Growth

Investment firm CFRA anticipates a promising future for the S&P 500 index, forecasting an 8% increase from its current status, spurred largely by the growth in corporate earnings.

Earnings Growth as a Catalyst

CFRA has revised its 12-month outlook for the S&P 500, setting a higher target that exceeds previous predictions. The revised target implies a noteworthy 8.2% gain from the index's recent trading figures, with Chief Investment Strategist Sam Stovall pointing to projected profit growth as a primary motivator behind this optimistic viewpoint.

The research firm's updated target for the index stands at 5,610 points for the following year, up from a former estimate of 5,250 points. Additionally, CFRA has put forth an estimate for the S&P 500 to reach approximately 5,415 points by the end of 2024.

Projection Based on Sectoral Earnings

Underpinning this bullish stance, S&P Capital IQ consensus estimates are predicting a 5.1% year-over-year rise in the first quarter's earnings per share (EPS) for the S&P 500, an increase from earlier predictions of 3.1%. This growth is expected to be driven by seven of the index's eleven sectors, notably with the communication services, consumer discretionary, and information technology sectors at the forefront with double-digit growth.

Despite the general uptrend, a few sectors — Energy, Health Care, and Materials — could experience earnings contractions. Nevertheless, the overall expectations for the year point to a 9.6% increase in per-share earnings growth for the index.

Technical Indicators and Market Trends

The technical analysis further reinforces CFRA's confidence, with recent indications suggesting a return to an upward market trajectory. These predictions, supported by CFRA’s Lowry Research, observe a rise in the S&P 500, marking a recovery after a slight dip in the prior month.

Moreover, historical patterns of market performance in election years coupled with the onset of the Federal Reserve's rate-lowering cycle could provide additional tailwinds for the market. However, CFRA also anticipates a possible second intra-year pullback, referencing historical trends post-recovery from bearish markets as well as notable first quarter price increases.

Exchange-traded funds (ETFs) that track sectors predicted to showcase earnings growth have also been highlighted, including the iShares U.S. Telecommunications ETF (IYZ), Vanguard Consumer Discretionary ETF (VCR), and Fidelity MSCI Information Technology Index ETF (FTEC).

Earnings, Growth, Forecast