Wall Street’s predictions for 2015 have been rolling in fast and furious over the last few weeks, and the latest firm giving its projection for the S&P 500 is Bank of America Merrill Lynch.
Savita Subramanian and the equity strategy team at BAML see the S&P 500 rising to 2,200 in 2015, a modest 6% return.
Subramanian notes that this is the lowest forecasted S&P returns since her team took over the year-end forecast role in 2011.
“Stocks certainly look more attractive than bonds,” Subramanian writes, “[but] the case for stocks versus other asset classes is less clear.”
Subramanian notes that gold and oil are now particularly cheap against stocks on a historical basis, and she expects that stocks will rise in-line with earnings growth. But similar to the forecast from David Kostin and the equity team at Goldman Sachs, Subramanian sees no multiple expansion for the S&P 500 in 2015.
Despite the modest upside forecast, Subramanian still sees plenty of reasons to buy US stocks.
“[Bank of America Merrill Lynch’s] Sell Side Indicator, which tracks Wall Street Strategists’ average recommended allocation to US equities, currently sits at just 52%,” Subramanian notes. “This is up from the all-time low of 43% we observed in July 2012, but well below the historical strategic equity allocation of 60-65%.”
And so with investors likely underinvested in stocks, this is a bullish sign.
Subramanian also says that though the ageing — and retiring — US population is often cited as a negative for stock, Boomers will need both income and capital appreciation, making the S&P 500’s dividend-paying members attractive to these investors.
To this end, Subramanian sees “big, old and ugly” stocks as potential leaders in 2015, and says investors ought to consider leaving the “new, shiny, exciting IPOs alone.”
And overall, though Subramanian expects more modest gains in 2015, she says the bull market is still in tact.
“So while returns may compress from the outsized gains we have seen over the last several years, we remain constructive on equities. The bull market in stocks is not over, in our view.”
For some perspective, here’s what some of Wall Street’s other top strategists have predicted so far:
- Bank of America Merrill Lynch’s Savita Subramanian: 2,200
- Credit Suisse’s Andrew Garthwaite: 2,100
- Goldman Sachs’ David Kostin: 2,100
Barclays’ Jonathan Glionna: 2,100
- Deutsche Bank’s David Bianco: 2,150
- Citi’s Tobias Levkovich: 2,200
- UBS’s Julian Emanuel: 2,225
- Oppenheimer’s John Stoltzfus: 2,311