S&P ‘could hit 2,500′

<p>The S&P index has been tipped to continue rising.</p>

The recovering US economy could see the S&P index continue to rise at a strong pace in the near future, with the market tipped to increase to as high as 2,500.

According to Stephen Auth, chief investment officer, equities at Federated Investors, it is possible that this landmark figure could be achieved by the index in the next 18 months to two years.

In an interview with Barron's, he revealed the robust US economy is expected to grow at a rate of between 3.5 per cent and four per cent and this will have a good impact for the country's leading stock markets.

"Market valuations depend on growth, bond rates and perceptions of risk, and all three of those are going in the direction that actually expands the price/earnings multiple," Mr Auth said.

"At the same time, earnings are expanding, and that's a recipe for another leg up in the market."

The Federated Investors representative predicted that the S&P 500 will reach 2,100 points at the end of the year, a rise that would mean it will have to jump by more than seven per cent on its closing figure from Friday (August 15th).

Bond yields are being kept low by monetary policy in the US and Mr Auth stated that he does not expect this or other factors supporting the growth of the S&P index to change in the coming months.

He added: "For one thing, the Fed is very skittish about the mistake that was made in 1937 that caused basically the second Great Depression — that is, rates were tightened too soon."

Many investors are still holding back to see the intentions of new leader of the US Federal Reserve Janet Yellen, who recently took over the post from Ben Bernanke. Ms Yellen was the preferred choice of US president Barack Obama, but she has given few clues about her plans for the US economy in her brief tenure to date.

Mr Auth stated that he believes Ms Yellen thinks"there is a lot of slack in the labour force, and she doesn't want to slow this recovery down until these people come back into the workforce".

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