- The S&P 500 set a new milestone on Thursday when it briefly passed 5,000 points for the first time.
- The benchmark US stock index has defied doomsayers and vindicated its true believers.
- Yet experts including Burton Malkiel and Gary Shilling have warned its returns are likely to falter.
The S&P 500 made history on Thursday when it briefly touched 5,000 points for the first time.
The benchmark US stock index has defied bears and vindicated bulls in recent years — but it could be headed for a slowdown.
The index of large-cap stocks took 757 days after cracking 4,800 points to cross the 4,900 mark, but only another 15 days to pass the 5,000-point threshold, Charlie Billelo noted on X.
The chief market strategist at Creative Planning said it has returned about 10% a year over the past three decades or so, but has had some wild swings on the way.
For example, its return was twice the average in the heydays of the dot-com boom, then half of it during the Great Recession, he highlighted in a chart:
—Charlie Bilello (@charliebilello) February 8, 2024
The S&P returned over 26% including dividends in 2023, and has climbed nearly 5% already this year, as key earnings have come in strong, inflation and recession fears have faded, while hopes for interest-rate cuts have grown. Its strong performance has upended some investors' expectations.
Leon Cooperman, the billionaire ex-boss of Goldman Sachs' asset-management arm, told Business Insider in October that he didn't expect the index to surpass its then-high of 4,800 points for years. He argued that a potent mix of fiscal and monetary stimulus during the pandemic had pulled forward market gains at the expense of future returns.
Other experts have championed the index. Jeremy Siegel, a Wharton finance professor and the author of "Stocks for the Long Run," predicted in November 2022 that stocks would soar by 20% to 30% over the next two years.
'Very happy'
His forecast suggested that the S&P, which was down 19% for the year at about 4,000 points, would climb past 5,000 in 2024 — as it indeed has.
"Stocks are quite undervalued," Siegel said at the time. "If you buy stocks, in a couple of years, you're going to be very happy."
Warren Buffett has also touted the S&P, proclaiming that 99% of people should steadily invest in it for the long term, via a low-cost index fund. He trumpeted the relentless rise of US stocks in a famous New York Times op-ed, published in October 2008 at the height of the financial crisis and titled "Buy American. I Am."
"Over the long term, the stock market news will be good," Buffett wrote. "In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."
The Berkshire Hathaway CEO wasn't ruling out a stock-market crash tomorrow, but declaring US stocks would be winning bets in the long run.
'Nosebleed' valuations
However, experts have warned that even if stocks continue rising, they're unlikely to perform as well going forward as they have in years past.
Gary Shilling, Merrill Lynch's first chief economist and a veteran forecaster, recently told Business Insider that modest economic growth and valuations at "nosebleed altitudes" could weigh on future returns.
Burton Malkiel, a former White House economic advisor and the author of "A Random Walk Down Wall Street," also told Business Insider recently that when stock valuations are elevated, long-term returns tend to suffer.
"There's probably somewhat greater optimism about returns than there should be," he said. "People ought to be very modest in their expectations."
The S&P may have reached a shiny new milestone, but it's unclear how long it can keep going, and there's a risk that investors will be disappointed.