The S&P 500 continues to run rings round the FTSE 100. It’s risen more in the past year (31%) than the Footsie has in the past decade (21%)!
Of course, that’s not including dividends, which the FTSE 100 is famous for. Add those in and the UK’s blue-chip index has returned around 8% a year on average.
Still, the disparity in share price performance is stark.
The S&P 500 was given another shot in the arm earlier this month when Donald Trump was elected US president. This pushed it above 6,000 points for the first time.
But how much higher can it realistically go? Well, one expert reckons it’s going to 10,000 by 2030.
Animal spirits
Edward Yardeni is the president of investment strategy provider Research. He thinks the economic policies of President-elect Trump will lift the index to 10,000 points by 2030.
He said pro-business tax cuts and deregulation would unleash “animal spirits“. However, he added that there’ll “undoubtedly be a few corrections along the way“.
A correction is a drop of at least 10% but less than 20%. If the decline exceeds 20%, it’s generally classified as a bear market. But Yardeni doesn’t expect one before 2030.
The S&P 500 is currently at 5,958. If it reaches 10,000, that would be 68% higher, representing an average annual return of about 9%. That’s roughly its historical average anyway without dividends.
Caution warranted
If Trump cuts taxes, it’s plausible that the S&P 500 will rise. It ultimately follows earnings growth and these policies will likely juice the bottom lines of many US corporations.
However, some economists fear that his policies, particularly tariffs, will cause a spike in inflation. If so, this could cause uncertainty and weaken investor sentiment.
Of course, nobody really knows what’s going to happen. But we do know that the S&P 500 is currently trading on a historically high price-to-earnings (P/E) ratio of about 30. Therefore, caution is warranted.
Mighty premium
One stock that I think could join the S&P 500 in future is language learning firm Duolingo (NASDAQ: DUOL). However, it’s also very expensive after surging 50% in 2024.
At $341, the stock is now trading for a lofty 23 times sales.
Nevertheless, I’m very keen to eventually add this growth stock to my portfolio. At the end of September, the company had over 113m monthly active users — 36% higher than the year before.
But only 8.6m of those were paying subscribers, which suggests a massive runway of growth, if the company can convert millions more free users into subscribers.
The risk here is that advancements in generative artificial intelligence (AI) could see rival apps emerge. Also, ChatGPT could become more of a competitive threat.
As a paying Duolingo customer myself though, I was very impressed recently when I had a real-time conversation in Spanish with an AI-powered digital avatar in the app.
Unfortunately, this feature is only readily available to Duolingo Max subscribers (the highest tier), whereas I’m on the tier below (Super Duolingo).
Still, it’s tempted me to upgrade to access this incredible AI conversational tool, despite ChatGPT Plus offering something similar.
It’s also convinced me to become a Duolingo shareholder as well as a subscriber. I’m just waiting for a pullback that brings the share price back towards $275 before making my move.
