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It has an end of the year, and now history can repeat itself. As noted earlier on October 18, the S&P 500 was in the process of a huge outbreak. Now that outbreak has happened, and if the technical chart turns out to be correct, the index could have a rate that will send it to around 3,600 over the next two years. It could be a gain of around 15% compared to the current level of 3,153.6 on November 29.
Due to profit growth alone, we can be halfway through 2020. S&P Dow Jones estimates that revenues in 2020 will increase by around 11.4%. Meanwhile, the S&P 500 could see several multiple expansion over the course of the year, resulting in the index reaching around 3,360 in 2020, a gain of around 7%.
S&P 500 daily price chart
Does history repeat itself?
The technical chart shows that the index has now been released from the 22 months of consolidation mentioned in the mid-October article. The outbreak occurs in the same timeframe as the previous two outbreaks in 2013 and 2016. If the pattern of the previous projects progresses, the S&P 500 could prepare itself for a movement of around 750 points from the outbreak at 2,870 to around 3,620.
Since 2009, the S&P 500 has three major movements higher. The move from 2009 to 2011 was good for the S&P 500 with around 710 points. That was followed by an increase of around 740 points from 2013 to 2015, and a gain of 750 points from 2016 to 2018. If that pattern continues, we can be in the very early stages of the next advance of the S&P 500.
S&P 500 monthly price chart
Multiple expansion
Multiple expansion and profit growth can also help increase the index over the next year, putting it in the middle of the projected range of the technical chart. Since 1988, based on data from S&P Dow Jones, the S&P 500 has traded with a forward PE ratio of around 19. Today, the S&P 500 trades with around 17.8 times 2020 earnings estimates.
S&P Dow Jones currently estimates that earnings in 2020 will increase by 11.4% to $ 176.92. With the help of those earnings estimates and a 2020 PE ratio of 19, the S&P 500 can rise by no less than 7% in 2020 to around 3,360.
Back to the basics
It may seem strange to think that it is a course that could increase it by no less than 15% in the coming two years. Especially since 2019 was a year full of headlines about trade wars, slowing global growth and a potential American recession. However, the S&P 500 always returns to earnings growth, despite the headline du jour.
What seems to be fluctuating is the multiplicity that investors are willing to pay for that income. Profit growth ultimately causes multiple expansion in times of growth, while PE ratios & # 39; s shrink in times of flat or negative growth.
(Data from S&P Dow Jones)
After a year with flat profit growth and multiple shrinkage, the S&P 500 is about to have a unique period. One where the market seems to be sending a deafening and compelling message that economic and profit growth are ready for a significant recovery in 2020. If that is the case, we may all be about to go for a ride near future.
