S&P 500: Current Correction Has Some Way to Go Before We Turn Higher

investing.com:

There is a rhythm to the markets, and market cycle lows support bull market recoveries. Recently, Ed Yardeni made a bold prediction that the S&P 500 index could hit a high of 5400 in 2024. 

“Market veteran Ed Yardeni predicts thatthe S&P 500 could reach a record high of 5,400 within the next 18 months. Yardeni, the head of Yardeni Research, believes that the current bull market, which began on October 12, 2022, will continue until at least the end of 2024. He expects the equity benchmark to make significant gains, with a target range representing an increase of 6.5% to 19.9% from its current level.”

While that may seem outlandish given the economic and fundamental backdrop, the market cycle supports the claim. The chart below is the annual rate of change for the S&P 500 index. Unsurprisingly, as noted, the cycles are pretty obvious. However, the trough of the market cycle in October is evident. Such provides room for the current market cycle to continue higher.

Unsurprisingly, earnings, which ultimately are reflected by the market’s price, are cyclical along with economic strength and weakness. We see the correlation when we overlay the annual rate of earnings change over the graph above. Such suggests that market participants are betting the earnings cycle troughed in Q1 2022 and will improve into 2024. This supports Yardeni’s claim of higher asset prices over the next 12-18 months.

However, given earnings are derived from consumer activity, the economic cycle must begin to improve for earnings to increase.

As with market cycles, the economy cycles as well. There is little argument current economic data is weak whether viewing the Leading Economic Index (LEI) or Institute Of Supply Management (ISM) measures. As with