Market Forecasts of 2017 and 2018 By: Gabriel PotterMBA, AIFA® 2018.01.04

Market Targets from January 2017

For most investors, 2016 was good but 2017 was better.  2017 was the year without fear with a near goldilocks scenario of low inflation despite coordinated global growth improvement (not just the United States), continuing earnings growth, and optimistic sentiment.  Wall Street analysts were already optimistic but the markets went better than expected, surpassing targeted forecasts. 

As a reminder, here are the Wall Street 2017 S&P 500 targets which we presented a year ago.

Analyst

Institution

S&P Forecast for 2017

Andrew Garthwaite

Credit Suisse

2300

Stephen Auth

Federated Investors

2350

Jonathan Glionna

Barclays

2400

David Kostin

Goldman Sachs

2300

Dubravko Lakos-Bujas

JP Morgan

2400

Tobias Levkovich

Citi

2325

Adam Parker

Morgan Stanley

2300

Savita Subramanian

Bank of A. Merrill Lynch

2300

John Stoltzfus

Oppenheimer

2450

David Bianco

Deutsche Bank

2350

Jeffrey Knight

Columbia Threadneedle

2450

Heidi Richardson

Blackrock

2400

John Praveen

Prudential

2575

Brian Belski

BMO Capital

2350

Sam Stovall

S&P Capital IQ

2335

Source:  Dow Jones Market Watch, Barron’s

The S&P 500 was at 2239 on Jan 1st, 2017 and it was forecasted to hit a predicted average of 2370.  The actual closing value of the S&P 500 on December 31, 2017 was 2675 – nobody was even close to the actual result.  Once we factor in dividend payments, the total return of the S&P 500 was 21.83% in 2017 – a superlative result. 

Revisiting 2017:  a clean finish

Whereas 2016’s clean finish was the story of recovering earnings potential in the United States with all time highs for the S&P 500.  Global growth soared and international markets appreciated this in terms of local currency gains, whereas US investors got the additional tailwind of currency effects.  Larger companies, with additional international revenue, outpaced smaller US companies.  Additionally, key technology stocks soared in 2017, pushing growth indices marked higher than the value part of the spectrum.

2017 was all gasoline and no brakes.  Bearish analysts waited for some shoe to drop – a natural disaster, higher inflation, tension with North Korea, Chinese deleveraging, lower monetary stimulus, a multi-national earnings miss, increased borrowing costs, or just some sense of skepticism on to suppress the stretched valuations on equities.  Instead, the solid fundamentals built over the past decade held up and were reinforced by increased sophistication of emerging markets and improved resilience of key trading blocs in developed markets outside the United States.

Going forward, there are reasons for continued optimism in the near-to-mid term.  The recently passed tax plan should increase deficits, which may stifle longer term growth prospects, but it is pure sugar for an already primed and healthy US economy.  Fiscally conservative economists who worry about long term debt, continuing deficits, or diminished growth from structural inequality may consider the tax bill dubious, but there are clear benefits to be had.  Specifically, it is mathematically simple to boost GDP when we simply borrow more money to pay for existing spending.  Additional money for large companies also translates to higher stock targets; several 2018 forecasts, like David Kostin’s in the table below, have been adjusted higher to reflect the bill’s passing.

The Updated Market Targets for 2018

Again, we started on January 1st 2018 with the S&P at 2675.

Here are the current 2018 S&P 500 targets.  The average of the 2018 forecast is about 2885 – about 8% higher than where it is now, by price.  Wall Street is optimistic.  While some of these forecasts have yet to be revised upward, few call for another 20% increase.  Several investment banks have lowered their long term capital market assumptions for US equity.  The fundamentals remain strong – low debt, great earnings, productive companies, rising profits– so real world economic activity should continue to grow at the 2.5% - 3.0% range, key economists believe the market prices already reflect that positive outlook.  The markets have absorbed the good news, so now valuations for US equities are sometimes less attractive than our international equity counterparts.

Analyst

Institution

S&P Forecast for 2018

Keith Parker

UBS

2900

Tony Dwyer

Canaccord Genuity

3100

Chris Harvey

Wells Fargo

2863

Sean Darby

Jefferies

2855

Binky Chadha

Deutsche Bank

2850

Jonathan Golub

Credit Suisse

3000

Steven Auth

Federated Investors

3000

Rob Sharps

T. Rowe Price

2775

David Kostin

Goldman Sachs

2850

Dubravko Lakos-Bujas

JP Morgan

3000

Tobias Levkovich

Citi

2800

Adam Parker

Morgan Stanley

2750

Savita Subramanian

Bank of A. Merrill Lynch

2800

John Stoltzfus

Oppenheimer

3000

Mike Wilson

Morgan Stanley

2750

Jeffrey Knight

Columbia Threadneedle

2750

John Praveen

Prudential

2925

Brian Belski

BMO Capital

2950

Source:  Dow Jones Market Watch, Barron’s

 

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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