S&P 500: Predictions for new highs range from late 2023 to 2031

S&P 500 returning to highs: four years of conflicting predictions

The S&P 500 will reach new highs. The doubt lies in the timing, and there is no consensus: some expect a new record in the fourth quarter of 2023, while others place the next peak in 2031, nearly a decade after the last one. Between these two dates, there are half a dozen equally blunt scenarios, none of which can be proven.

Investors set the starting point: the index bottomed out in October 2022 with a 25% discount from its all-time high and has since seen months of gains. It first broke the 4,200 resistance, then the 2021 level. Those who bought at the bottom are seeing profits, while those who waited for confirmation are still waiting.

When will the S&P 500 reach new record highs?

No one knows. Forecasts range from the fourth quarter of 2023 to 2031, each with its own logic. The most pessimistic view speaks of a lost decade: the previous high took ten years to repeat, so this one might do the same. Another trend suggests a sideways range between 3,800 and 4,000 points for several years, without a breakout or a crash in sight.

Doomsday prophets had an answer for everything, even the rally. First, they claimed the October 2022 bottom wasn't a real bottom; then, that the rebound was a mirage; later, that the party would end in summer. When the index passed 4,200 and accelerated, the narrative shifted again: the debate was no longer whether it would rise, but whether anyone was being left behind.

The 46.3 ISM reading and the recession countdown

The data most frequently cited as proof that a recession is near is the ISM manufacturing index. The March reading stood at 46.3, compared to an estimate of 47.5 and 47.7 the previous month. New orders fell to 44.3, prices paid contracted to 49.2, and production stood at 47.8. Employment hit its lowest level since July 2020.

The statistic accompanying this number is thought-provoking: since 1948, the ISM has been at or below 46.3 on sixteen occasions. In twelve of those—75%—the economy was in a recession or about to enter one. The four exceptions occurred in April 2003, January 1996, April 1967, and April 1952. Three hits out of four is a strong percentage, but not a certainty.

This leads to the most uncomfortable argument for current buyers: the stock market usually bottoms out on average eleven months after a recession begins. If the clock has already started, the bottom is still far off. There is a visible rift between two worlds: equity investors are betting there will be no recession, while fixed-income investors consider it inevitable, reflecting this in interest rate expectations and the inverted yield curve.

The decadal pattern: ten years of gains and ten years of sideways movement

There is a strong theory explaining why 2031 doesn't sound far-fetched: the stock market behaves in decades. Gains from 1990 to 2000, a lost decade from 2000 to 2010, gains from 2010 to 2020, and, according to this reading, another lost decade from 2020 to 2030.

Within this framework, the current period would yield no returns and instead see sharp declines, similar to the 1970s or the year 2000. It is a hypothesis, not a destiny: the same chart allows for a less dramatic reading of simple statistical coincidence. However, it has undeniable merit, explaining pessimism without needing catastrophes or black swans.

Inflation, nominal profits, and the rally that scares people

The simplest explanation for the rise has nothing to do with optimism. With annualized inflation around 2% in recent monthly readings, strong employment, expected wage increases for 2024 and 2025, resilient consumption, and rate cuts on the horizon, corporate profits are growing in nominal terms. The stock market is rising because prices are rising. One only needs to look at Argentina or Venezuela to see this on a large scale.

It is a nominal rise, not necessarily a real one, which unsettles those watching purchasing power. Even so, the context—contained inflation, solid employment, and the return of cheap money—acts as a boost for any index. The voices repeatedly mentioning recession only add fuel: if someone shorts the highs, the forced closing of those positions could provide the final push. Some are already targeting 5,200 points.

Selling with a 35% gain or continuing monthly contributions

This is the real frontline. Some defend monthly dollar-cost averaging, regardless of what happens, as the only strategy that doesn't require being right. Others consider this simplistic and prefer to be decisive: buy when it seems cheap and sell when it seems expensive. The numbers from the latter group are striking: a tech fund closed with a 35% gross gain and an S&P 500 index fund liquidated with a 26% gain.

The problem is the cost of getting the timing wrong. Being 25% below an all-time high doesn't seem like a bad entry point, but 25% was not the bottom in 2000 or 2008 either. And those who stay on the sidelines waiting for a 40% or 50% crash have been paying for the wait for years. A full analysis of both sides, with every entry and exit, would be too long for this space.

If the journey shows anything, it is that the next record will arrive before 2031 and after the next scare. Exactly when, with what inflation, and with which central bank remains unanswered. Those who set a date do so by intuition.