S&P 500: 7,000 Target For 2025 – Sanjeev Sharma

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Sanjeev Sharma returns to explain his methodology and share his S&P 500 forecast for 2025 (0:40). Primary concerns this year are supply shocks and population growth (8:45). Understanding the consumer = understanding the stock market (12:00).

Transcript

Rena Sherbill: Sanjeev Sharma, welcome back to Investing Experts. So last time you were on, it was March 2024, and you were giving your S&P 500 target. You thought it was gonna hit 6,000 by the end of 2024.Why don’t you start with, if you would, an explanation, a deeper understanding now that we are a few months past the year end?

Sanjeev Sharma: As you know, I’ve been writing at Seeking Alpha since 2008. I started writing about the stock market direction and my target for the S&P 500 starting from 2009. And so far in more than fifteen years and in one or two years, I did not write.But, otherwise, whenever I wrote, the direction I predicted has always been correct, for more than fifteen years.

And what I did for this is I used a technique of my own instead of using what are the known techniques. I developed a methodology, or you can say a formula, later used on machine learning, based on five main factors which impact the average consumers disposable income.

That is how much money he has left. Every middle class American, how much are the wages he’s making? How much is the inflation impacting it? Are the wages going going up? By how much inflation? How much it is going up?

For inflation, I use CPI numbers. And then, for gas prices, because gas prices are very important in America. How much is the impact on the gas prices this year approximately?

And then what is the direction of the interest rates? The interest rates are impacting everybody, right? And also the home prices because home prices will impact rents.

So what is that that also negatively impacts your spending ability. If you’re spending a large amount of money on a home, either rent or basically mortgage, there is gonna negatively impact your spending ability.

So I used all of these factors. I took the historical data, and then I used basically a regression analysis, machine learning, and I came up with a formula. So I have been using that formula, and so far, it has been correct.

Some years, even when I am myself surprised, the number of the formula gives it is difficult sometimes for me to digest also, like last year, and nobody else, I think, predicted the 6,000 so early.

Before me, if you see, you’ll not find any Wall Street Analyst who predicted the S&P 500 will cross 6,000 last year at the time when I predicted it. So same thing this year.

This year is a little bit more challenging because a new administration has many, many different changes. There is DOGE, which is the Department of Government Efficiency, which is cutting government spending in some ways, trying to save money.Then you have immigration controls. New people are not coming in. And the population growth is always helpful for the economy. So when the population goes down, that’s always a challenge.

If we all know what happened to Japan, their population started shrinking in the 1980s, and it’s more than forty years, and they are still stuck there, nearly forty years, and their economy has not recovered that much.

So that population is a problem basically because US population is also like all other developed countries, the population growth is low or if you remove immigration, the population can fall down basically. And that’s one factor.

Third one is tariffs. So tariffs also have a lot of impact.

I looked at all these factors and tried to see what will happen to the S&P 500. Initially, like many other people, I thought maybe S&P 500 would go down because of all these sectors. But once I tried to put these numbers into the formula, I realized that even this year, the market will go up, and it will go up quite a lot.

The formula, whatever way I do, it is showing S&P 500 will be at least 7,000 or around 7,000 at least, I would say. So it should go up higher than that. That’s what I think it is. If you say I can go to each of these factors and I’ll explain to you?

RS: Yeah. Absolutely. Please do.

SS: First one is wages. You know, the wages are still going up because of the immigration control and large number of people who are retiring plus announcements by many corporations who are trying to set up manufacturing. I think the wages will continue to go up this year also.As far as the inflation or the CPI number is concerned, we know that there is an impact of tariffs, but the fact is those kind of things which you import from other countries is only a a small percentage of the CPI.

The CPI has many different components. It has basically, food, beverage, housing, transportation, medical care, education, recreation. All of those, which I just mentioned, are actually not that much impacted by their tariffs.

Yes. Clothes, shoes, other goods and services, they are impacted. And some of the important things have been left out from the tariffs. For example, there is no tariff on energy. There is no tariff on lumber. There is no tariff on pharmaceuticals. There’s no tariff on a lot of electronics also.

So it’s not going to dramatically impact the CPI.The tariffs seem very high, 30%, 40% tariffs which you’re talking about seem very high, but the fact is that it is going to impact only one particular part of CPI. So the CPI is not going to dramatically – if you look at the different economists, what they are saying that how much is the inflation gonna go up, they are saying inflation will go up. The impact of tariffs will be 1%.

Now let’s say the CPI came to be 2.3% today. So, let’s say there is an impact of tariffs. So it will go up to maybe more than 3.2%. But, that’s not going to really create a problem, because if the wages are still wages are still going up, that will take care of the impact on the stock market.The third is trying gas prices.

Now gas prices have not gone down as I was expecting. It will go down a lot. It has not gone down a lot. If you look at oil prices as barrel per barrel, they’re going down, but gas prices at the pump have not gone down yet. But they have not gone up also.

And I expect once the war, if and when the war with the Ukraine, the Russia Ukraine war – once that war comes to an end, I think that will help the gas prices come down further, which will always help every consumer and everybody.

The fourth is interest rates. The interest rates are very important. Interest rates have not been going up or down much. They are almost the same where they were in the beginning of the year.

And, they could have gone down, but the fact is that because of BRICS, because of this Ukraine war, and, certain things which have been done, you know, it has been, there is a dent on the brand image of US Treasury bonds.

And therefore, you can see, China has been offloading US Treasury bonds. They had 1.1 trillion US Treasury bonds one or two years back, and now they are around 800 million. Every other country is not going after, purchasing the US Treasury bonds that much.

So I don’t expect that the interest rates will go dramatically low. I think they’ll probably be the same what they are right now. The Federal Reserve can try to bring down the overnight rates. That’s what they have. They have the overnight lending rates.

But ten year treasury, I don’t expect that to dramatically go down. It could probably be the same. Little bit if it goes down, like a few points, that’s gonna be helpful.

And the last one is the home prices. As you all know, the home prices are actually going down for last one or two years. So it’s a good thing. If the home prices are going down, that’s a good thing for everybody. When I look at all these things and I plug these numbers into the formula, it still comes down to be around 7,000 by the end of the year.

RS: How do you qualify for either to the upside or to the downside? What do you see affecting those things? What has you concerned or, if anything, close to concerned about how it may go up or down from 7,000?

SS: Yeah. Basically, I look at it is ultimately, it is an estimation only.For example, when you say wages. So wages are impacted by tariffs. They could be impacted in one way. DOGE, they could be impacted another way. Immigration, they could be impacted a third way.I mean, my main concern this year let me tell you.

My primary concern this year is population because the US has been able to maintain its population growth so far because of immigration.At least legal immigration, they need to do something. And as I predicted in my market, in my article this year, government will encourage population growth, you know, organically, and you you must have heard.

They have declared, like, $5,000 to women who, you know, who are gonna have babies this year. So, essentially, population growth is very key to the growth of the, you know, stock market economy and everything. But other factors are, I think pretty much you can reduce them, like wages. So if population is going down and the number of people are retiring, then you need people. So you have to pay them.

Essentially, I would say wages are impacted in some ways. Similarly, like DOGE, if they are firing a lot of government employees, there’s a negative impact on wages.

Besides population, the second thing which I have been thinking about is, is supply shock. Because, as you know, we import a large amount. China is the biggest exporter to the US. But the fact is that the US is only 14% of the China’s total exports. It used to be 20% a few years back. Now it’s 14%.

If let’s say, the dependence of China on US becomes further less, let’s say it becomes 10% because other countries are growing at a rapid rate also, and they are importing from China. They can very well create a supply shock to US, and it’s already happening. You must have heard that the imports from China are down this year.

So a supply shock is what worries me. China is a supply shock on certain things. Then, for certain areas, inflation can go up, just like it happened during the COVID.

RS: Would you care to share how you best play this? Is it through an ETF, or how would you discuss the investment implications of how best to play this?

SS: I only talk about S&P 500. You can use either an ETF or you can buy some options. It’s large number of individual stocks also as well as ETFs also. I have Nvidia (NVDA). I have Microsoft (MSFT). I have Oracle (ORCL) also.

RS: Deep into earning season, specifically within the tech sector, anything that you’re seeing from the earnings that encourages you in terms of where you see the S&P going or discourages you along the way, anything that you pay special attention to as it as it relates to earnings?

SS: Using earnings for stock market production is not the right way because, and using the PE ratio is also not the right way.The PE ratio of the S&P 500 has been between fifteen and hundred and hundred and twenty in the last fifteen years, you can see.

So that’s why people are not able to do it. They’re focusing on the earnings. They are focusing on the PE ratio. They are focusing on what the company is saying about the growth.

But the S&P 500 is a very big index. And then that’s why I realized all of these sectors are never gonna work. And, that’s why I created this methodology where I’m not focusing on these factors.

Looking at the consumer, well, ultimately, it’s in the hands of the consumer. If you can understand what is the situation of the consumer, you can understand the stock market.

RS: Anything else that you would dispel in terms of how people assess the markets or if people would say, oh, come on. How is it getting to 7,000? That’s nuts. What else would you say?

SS: They said the same thing when I said it will be 6,000 last year. You know? And, it did cross 6,000. Actually, the articles said 5,808 and they’re at 5880.And even before that and in 2022, and the entire stock market was saying market will go up. I said it will go down this year. You can see. So I have a fifteen year track record.

I mean, I cannot keep telling people I’m right and they’re wrong. And I could be wrong one day. Why not? Sometime because there are so many different factors. I have just one factor which I use, which is the disposable income. There are other factors. There is a war. The war escalates further and something would happen.

RS: Do you have any thoughts or desires of taking the model here and extending it to a different index?

SS: I have not really got a chance to do that, I have to understand it. Like, some people ask me, can you do it for India? No. I cannot because I have to understand that market, how that economy works and what drives that economy. See, an export based economy is different. Consumer based economy is different. So I’ve not been able to spend time on it. Or you can say I didn’t get a chance to spend time on applying this to other industries or other countries or you can say the indexes, basically.

RS: Well, I appreciate the conversation. Sanjeev Sharma, your articles are on Seeking Alpha for those interested.

Anything else that you would care to share about where people can find you, how they can get in touch with you?

SS: You can find my details on Seeking Alpha or search for Sharma disposable income formula. If you Google Sharma disposable income formula, you will get all the details.