On February 9, David Kelly, chief global strategist for JPMorgan Asset Management, went on CNBC’s “Squawk on the Street” to share his thoughts on the S&P 500 reaching 5,000 and what this achievement may or may not indicate about the months ahead.

The Significance of S&P 500 at $5,000

Kelly reminisced about the days when the S&P 500 stood at 500 in the 1990s, marking the current milestone as a testament to the tremendous growth in financial assets and the profit share of GDP over the decades. He highlighted how companies have thrived in slow-growing economies, attributing this success to the increasing value of financial assets and a significant rise in the profit share of GDP.

Earnings, Efficiency, and Market Valuations

Addressing the current earnings season, Kelly pointed out that while corporate results have been strong and margins great, the future growth in earnings is limited. He emphasized that the market’s upward trajectory is now more about valuations than earnings growth. In a stable environment, investors tend to push valuations higher, a trend that can continue until a crisis prompts a reevaluation.

2024 Economic Forecast

Kelly outlined a base case for 2024, predicting 2% growth, with inflation heading towards the Federal Reserve’s 2% target and unemployment remaining low. He anticipates a stable environment, barring any unforeseen shocks that could trigger a recession. This stability, according to Kelly, is what may allow the market to continue its ascent.

U.S. Economic Performance and Global Flows

The U.S. economy’s resilience, particularly in consumer spending and business investment, has distinguished it from other global economies facing deflationary pressures and weaker growth. Kelly noted the relentless nature of U.S. consumers and businesses as key drivers of the nation’s economic outperformance. This domestic strength, coupled with a strong dollar, has made the U.S. an attractive destination for both domestic and international investors.

Inflation Outlook and the Dollar’s Role

Kelly discussed the potential for wage growth to remain around 4%, alongside decreasing inflation pressures from auto insurance and shelter costs. He suggested that the U.S. might see inflation numbers grind lower through the year, with the strong dollar helping to offset any spikes in import inflation.

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