We typically speak of stock market meltups as desirable for a limited time only, as they’re typically followed directly by meltdowns. On second thought: A stock market meltup might be alright after all. A meltdown needn't follow it if it is an earnings-led meltup rather than a valuation-led meltup! That is, if it has fundamental support from strong earnings.
The bull market in stocks that began after the pandemic lockdowns has been primarily driven by earnings. We've been bullish on the economy, earnings, and the stock market since the March 23, 2020 bottom in the S&P 500. We've been bullish again on all three this year. However, earnings are growing even faster than we expected.
We've been expecting S&P 500 companies’ collective forward earnings to hit $300 per share by the end of this year. It is on track to exceed our expectations. Forward earnings is the time-weighted average of industry analysts' consensus earnings expectations for the current year and the coming year. With the year winding down and past months falling out of the calculation, forward earnings is currently converging toward the 2026 consensus earnings outlook, which was $304.12 during the week of September 4 and is rising (chart).
The current forward P/E of the S&P 500 is around 22.0. Multiplying that valuation multiple by our $300 forward earnings estimate for year-end puts the S&P 500 at 6600, our current year-end target. If forward earnings rises to $310, which seems possible, then the S&P 500 would end the year at 6820. If the forward P/E rises to 23.0, the S&P 500 would hit 6900-7130. (We are still targeting 10,000 by the end of the Roaring 2020s.)
