Has the bull market reached the end of the road?
The bull market seems to be at a crossroads at the end of 2015. Six straight years of gains have been seen, but as 2015 winds down the Dow Jones Industrial Average (DJIA) has less than a week to close with the index down about 1.5% and the benchmark S&P 500 down less than 1%.
The real issue is not just that the bull market’s gain has gone on for over six years now. What matters is exactly what may come to be in 2016. Election years are supposed to be good for the markets, but the backdrop of a strong U.S. dollar and weak trends continuing in the prior growth markets of China, Brazil, Russia and elsewhere are weighing down on earnings growth — and that is weighing down Wall Street strategists’ expectations.
Another issue is that weak energy prices and weak oil and gas earnings are hurting the overall earnings power of the energy sector. Ditto for companies tied to metals and mining or other commodities, and companies reliant on high exports.
The DJIA has fallen far short of analyst expectation targets to derive a DJIA 19,142 peak in 2015. The S&P 500 Index closed out 2014 at 2,058.90 and was close to 2,044 last week. Keep in mind that some targets are carry-over targets that were made earlier and some of these may of course change before year-end or at the onset of 2016.
The universe of strategists was taken from the projections from Bank of America Merrill Lynch, Citigroup, Credit Suisse, Goldman Sachs, JPMorgan, Morgan Stanley, Wells Fargo, RBC, BMO, Barclays, Canaccord Genuity, Deutsche Bank, Nomura and UBS. Again, their estimates may change before year-end or in the beginning of 2016. - S&P 500 target: 2,200 The firm sees a 7% total return
for the S&P 500 in 2016, roughly 5% in inflationadjusted terms. Its strategists believed that Federal Reserve rate hikes are designed to engineer modest growth rather than to put the brakes on a runaway economy, so stocks should do well, particularly those that can raise their dividends and offer investors a rising income stream. The current top 10 Merrill Lynch stock picks for 2016 are Citigroup, Coca-Cola, Exxon Mobil, 3M, Walt Disney, Ecolab, Pfizer, NextEra Energy, Qualcomm and Verizon Communications.
Other key strategist targets from Citigroup, Credit Suisse, Goldman Sachs, JPMorgan, Morgan Stanley and a half dozen more are featured below. - S&P 500 target: 2,200 Citi sees about 7% upside in stocks, despite lowering equities to a Neutral weighting. It also warned of an aboveaverage chance that the economy could dip back into a recession. That is not set in stone, but the firm is less positive in equities than in the past.
Credit spreads, an earnings dip, metals and transports, margins and low sentiment were all listed as concerns. - S&P 500 target: 2,150 The firm sees stocks trading near fair market value for the first time in about five years. It thinks this is a time to trim equity weightings, having previously seen a mid2016 S&P 500 target of 2,200.
Elsewhere, Credit Suisse sees the MSCI emerging market index offering roughly 15% potential US dollar upside to year-end 2016. It recommended overweight positions on China, Korea, India, Mexico, Malaysia and Turkey, and the firm sees being underweighted in Brazil, Russia, Thailand, Philippines and Poland.
Credit Suisse also has been making controversial stock calls: it removed GE from the focus list, but now likes the AlcatelLucent/Nokia merger and is now somehow
bullish on BHP. - S&P 500 target: 2,100 The Goldman target was based on 2.2% average growth in 2016 and 2017, with a P/E ratio of 16.2. What stood out was that the firm thinks earnings can grow close to 10% due to a potential recovery of energy profits. That means caveats, while in November Goldman added Apple to its Conviction Buy List. - S&P 500 target: 2,200 The firm sees S&P 500 year-end earnings per share at $123.00. That implies roughly 3% to 4% in the S&P’s earnings per share over the year. JPMorgan expects the oil drag to fade, but it sees a strong dollar persisting.
It also suggested for its clients and investors to exit many of the top momentum stocks from 2015 because they have become crowded and expensive. - S&P 500 target: 2,175 The firm made big news publishing its views for investors to brace for a period of low investing returns. It was back in August when Morgan Stanley cut its 12-month target for the S&P 500 to 2,200 from 2,275, with expected forward price-to-earnings ratios of 16.6 rather than the previous forecast of 17.2. It also cut its 2016 earningsper-share forecast for the S&P 500 to $128.50 from a previous $131. Morgan Stanley expects the Fed to raise rates five times between now and the end of 2016. - S&P 500 target: 2,230 to 2,330 Wells Fargo carries a scale of targets for a range rather than listing absolute numbers. This seems more fair, although it makes the expectations for a low-end, mid-point, or high-end up for debate.
Wells Fargo has an S&P 500 Index operating earnings projection of $130 (per all
S&P 500) for 2016. - S&P 500 target: 2,100 BMO expects a correction of some sort to arrive in 2016, which may lead to the first year of losses since 2008 (if 2015 doesn’t beat 2016 to the punch). This call was from the end of November, so it could be refreshed.
BMO also sees $130 in earnings per share for the whole S&P 500. Its strategist was more bullish than many before this 2016 call, but concerns were around the impact from higher interest rates, low or lower commodity prices and lower growth in China and Europe. - S&P 500 target: 2,300 RBC’s target of 2,300 is more aggressive than most, but it comes with some caveats. This was from November, but a CNBC report from September showed that RBC was too bullish for 2015. At that time, the firm had cut its targets to 2,100 from 2,325 for 2015.
RBC gave four top tech stock picks for 2016 at the end of November: Adobe Systems, Amphenol, Facebook and Visa.
A list of other targets from other firms without the color comes from Birinyi’s Ticker Sense. These five S&P 500 targets for 2016 have not been confirmed by 24/7 Wall St., but they were listed as follows: Barclays: 2,200 Canaccord Genuity: 2,350 Deutsche Bank: 2,275 Nomura: 2,245 UBS: 2,275
Without weighting any firms heavier or lighter due to size or confirmations of targets, this left 14 firms on Wall Street with current price projections for the S&P 500 target is almost 2,218 for 2016. Again, that can and very well may change in the days and weeks ahead as strategists tweak their 2016 numbers. (Source: 24/7 Wall St.com)