Dow 60,000 and S&P 500 8,000? A Massive Earnings Surge Might Make It Happen

Last week, the Dow Jones Industrial Average surpassing 40,000 marked a significant milestone for investors. However, top Wall Street forecaster Ed Yardeni envisions even larger gains ahead, driven by strong earnings.

Ed Yardeni, chief investment strategist at Yardeni Research, informed clients that the DJIA could surge by 50% to reach 60,000 by 2030, while the S&P 500 might climb to 8,000. The Dow closed above 40,000 for the first time on Friday.

This forecast implies a 7% compound annual growth rate for the Dow and 7.1% for the S&P 500.

Yardeni stated, “These targets could be met with a forward P/E of 20 and forward earnings at $400 per share, up 60% from an estimated $250 per share this year. We believe this is achievable in our Roaring 2020s scenario.”

Yardeni’s Roaring 20s scenario assumes S&P 500 companies will report annual earnings per share growth of at least 8.8%, the historical average since 1936. If the growth rates of nominal and real GDP exceed their post-1940s averages of 6.3% and 3.1%, respectively, EPS growth could accelerate.

According to Yardeni, “This could happen if productivity grows faster than its 2.0% average since 1951, as we expect in our Roaring 2020s scenario. Higher-than-expected productivity growth would lead to higher-than-expected real GDP growth, lower unit labor costs, increased wages relative to prices, and improved profit margins.”

Industry analysts are increasingly optimistic, with consensus revenue and earnings estimates suggesting profit margins of 12.6% this year, rising to 13.6% and 14.4% over the next two years.

Last December, Yardeni predicted the S&P 500 would reach 6,000 within two years. He accurately forecasted a rally for the index last year, and his 5,400 target for the S&P 500 for 2024 is among the highest on Wall Street.