Peer into the looking glass of the US stock market and you might see a double-digit rally taking shape before the end of the year, one strategist says.
James Thorne, the chief market strategist at Wellington-Altus, said he sees a path for a euphoric rally by 2027, with the S&P 500 potentially rising to 10,000 in the most bullish scenario. A rally of that magnitude would mark a 30% surge in the benchmark index.
While Thorne said 10,000 isn’t his prediction for the index, a rise to that level “is not fantasy either.”A gain of that size would be enabled by one seismic change in the investing landscape: the US’s shift to a “debt-heavy, technology-intensive economy,” he wrote in a recent note to clients.
Thorne called the new economic regime “The Red Queen economy,” an allusion to Lewis Caroll’s novel Through the Looking-Glass. It’s a reference to how companies and nations need to invest heavily in order to avoid falling behind in the new regime, Thorne said, a shift from the previous status quo, when capital-light firms were rewarded.
“America has gone down the rabbit hole. Wall Street is peering into the mirror, and the Red Queen has become the central economic constraint,” he wrote.
Investment has exploded in the past year amid the AI arms race. Meta, Amazon, Google, and Microsoft, four of the biggest AI spenders, are on track shell out more than $700 billion in AI capex this year alone.
That investment looks like it’s also opening up a new chapter for the US stock market, Thorne said, pointing to the potential for a “stronger investment base” that, combined with policies that incentivize domestic production, could bring on a surge in productivity. Eventually, that could also lead to stronger economic growth and higher profits, he said.
Earnings have already been growing at a historically fast clip. The earnings growth rate for the S&P 500 is estimated to be around 28.5% in the third quarter, which would mark the third straight quarter the index has seen earnings growth of more than 25%, according to FactSet.
“If earnings are growing faster than consensus expects, static valuation measures will understate the market’s potential. A market can look expensive on trailing earnings even as its future earnings capacity improves. The case for an S&P 500 at 10,000 by 2027 rests on that premise,” Thorne said.
Thorne outlined several risks that lay ahead of markets even as he sees high upside potential for stocks. They include factors like higher bond yields, headwinds from tariffs and geopolitical shocks, and moderating growth as the AI trade enters its “second act.”
The idea that investors may write off the latest investment boom as signs of “late-cycle excess” also remains a risk, he added.
“The rabbit hole is the transition from financial stagnation to an economy built around production and investment. The looking glass is Wall Street’s difficulty in recognising that the rules have changed,” Thorne said.
“The mirror has turned. The only question is whether investors can see it before the race has moved on,” he added.
Fears of an AI bubble have this summer, with the tech sector finding some stability after a brutal rotation earlier in the year. The tech-heavy Nasdaq 100 is up 17% from levels in January, putting it on track for its fourth-straight year of double-digit gains.
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