With just 3 trading days left in 2014, it is time to look ahead to 2015. What do Wall Street strategists foresee for 2015 and should we even care?
Perhaps you are familiar with Philip Telock's landmark UC Berkeley study that looked at 82,000 predictions over 25 years by 300 leading economists. It turned out that their so called expert views were no better than random guesses, and worse, the more famous, the less accurate the prediction.
While this may be the case, the strategists did a pretty good job with their 2014 predictions. The 14 strategists nailed the S&P EPS estimate as their average prediction was for 117.21. While 4th quarter earnings aren't reported yet, the S&P is on target for $117.32. Bravo to that prediction. On average, their S&P 500 target was for 1955 or +5.7%. This proved to be too conservative across the board. The best prediction was from Tom Lee, formerly JP Morgan's chief US equity strategist, who forecasted 2075.
Predictions for 2015
After reviewing recent Wall Street reports, let's take a look at 13 of the top Wall Street strategist's predictions. For 2015, the average price target for the S&P 500 is 2212 or +6% (from December 26th close) so overall it remains a bullish tone for the New Year. However there is a wide range of opinion with 3 prominant strategists predicting a flat year for the S&P. On the other hand, Stoltzfus, Golub and Lee believe it will be another year of double-digit gains! On average the group sees S&P 500 earnings per share rising 7.5% to $127. Bottom up estimates are a bit more bullish landing at $131 for 2015.
|Strategist||Firm||S&P 500 target||% upside|
|Andrew Garthwaite||Credit Suisse||2100||0.6%|
|David Kostin||Goldman Sachs||2100||0.6%|
|David Bianco||Deutsche Bank||2150||3.0%|
|Savita Subramanian||BoA Merrill Lynch||2200||5.4%|
|Adam Parker||Morgan Stanley||2275||9.0%|
While I could summarize each strategist's view, I will take a quick look at the outliers of the group.
First on the bearish side are Kostin, Garthwaite and Glionna who all have a target of 2100. Goldman's Kostin predicted a weak market in 2014 and he is sticking with a flat market for 2015. Let's hope his prediction is wrong again. Credit Suisse's Andrew Garthwaite predicted a modest 6% gain in 2014 but is forecasting a flat market in 2015. He believes that the market will hit 2200 before pulling back to 2100 by the end of the year. He sees a 2nd half correction as Fed rates rise and “U.S. profit margins peak against a backdrop of full employment.” His overall advice is stay underweight the U.S.
The two most bullish strategists are Tom Lee and RBCs Jonathan Golub with targets of 2325, +11%. Last year, Golub's target was middle of the pack, but this year is he getting all bulled up. He believes 2015 will be highlighted by healthy US GDP growth, lackluster global growth with China and Japan getting worse, elevated profit margins, low volatility, and most multiple expansion. He favors financials, healthcare and technology.
Tom Lee hopes to be the most accurate man on the street with another bullish target for 2015. He says to “Be contrarian. Investors are expecting 2015 to be a low-return year and are focusing on deflation and Fed tightening.”
Capital stock is again showing signs of pent-up demand, and as a consequence, companies and households will have to invest. In other words, obsolescence is playing a role here. Equipment needs to be replaced as it reaches the end of its useful life.
So how are you feeling for 2015? Bullish or bearish? Leave your predictions below.