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Will the S&P 500 Hit 3,000 in the Next 5 Years?

Jon C. Ogg

The past five and a half years has generated one incredible bull market for stocks. After bottoming out at 666, the S&P 500 has now hit 2,000 -- and one team at Morgan Stanley has outlined how and why the S&P 500 could be headed to 3,000. While we have outlined this call, we are asking readers to participate in the brief poll below.

Most of the S&P 500 forecasts at the end of 2013 and start of 2014 seemed to have a 2,000 peak implied for 2014, so do not expect the move from 2,000 to 3,000 to happen in short order. That being said, the prediction from Morgan Stanley relies on another five years or so of expansion.

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Does 3,000 sound ridiculous? Well, when we highlighted the technical analysis call from Jay Lefkowicz in the summer of 2013 that the S&P 500 Index could rise to 2,584 over a multiyear period (when the S&P was closer to 1,700), that seemed very ambitious at the time. Buy what about now? That is a gain of less than 30% ... so does the call for a gain of another 50% sound too ludicrous?

Morgan Stanley's Adam Parker had switched from bear to bull some time ago, but his strategist team's call that the S&P 500 could hit 3,000 has some suppositions along with it. One driving force is that the a prolonged period of U.S. deleveraging could be coupled with a very uneven global recovery. Parker's note was in his 2020 Vision, and the case is that the next recession is far from imminent.

The call assumes earnings growth of about 6% per year and that the 17 times expected earnings (for the S&P 500) is realistic. Parker's mid-2015 target is roughly 2,050.

Parker does expect consumers to have a cushion against rising rates, even in a rising rate environment. Another driving force has been that many broad economic indicators have only just started to reach normal recovery levels, which are far from unsustainable levels.

Let us know what you think in our brief anonymous survey. Our question is on where the S&P will head before the next true bear market comes, with the timing of that bear market left as "undetermined" in the views.

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