Deutsche Bank’s David Bianco has reaffirmed his expectation that the S&P 500 will end 2015 at 2,150.
While that would represent a respectable 9% gain from today’s levels, he is nevertheless one of the more bearish strategists followed by Business Insider.
Not only that, he also warns that the S&P is likely to make a 5%+ down move in Q1 before coming back.
“We think the key issue for 2015 is how the US economy, its labour market and its monetary policy compare to the world,” Bianco wrote in a 90-page note on Monday. “If the Fed hikes in 2015, while other central banks ease, as DB expects, then the dollar is likely to further appreciate and keep oil prices weak. The combination of weak oil and a strong dollar will limit S&P EPS growth to a low single-digit rate despite likely 3%+ real US GDP.”
Bianco sees the rally extending for years. He forecasts the S&P 500 climbing to 2150 by the end of next year, and 2030 in 2016.
“In today’s inflation and real long-term interest rate environment, we consider a 7.5% nominal and 5.5% real total return from the S&P 500 to be fair and likely superior to most major alternatives,” he wrote. “We think the S&P is likely to deliver such annual total returns in 2015 and over the next few years and is thus fairly valued.”
Here’s Bianco’s summary of the top 15 market themes for 2015:
1) Tough start: S&P likely dips 5%+ in 1Q on EPS cuts and Fed hikes in sight
2) Stick with strength: We stay OW Health Care and lower PE big-cap Tech where further PE expansion has most potential and EPS growth is healthy
3) Domestic cyclicals OW: Strong US GDP should benefit Banks & Retailers
4) Slow EPS growth, but strong payouts: DPS growth favoured payout play
5) Keep cautious commodity plays: Wait for oil to stop falling and 4Q reports
6) Industrial Capital Goods face 3 big macro challenges: China, oil and dollar
7) Capex motives: Productivity enhancers desired, but not additional capacity
8) Transports deserve a sector: Transports are more domestic and fuel users
9) Relive the 1980s?: Weak oil (√), strong dollar (√), more corp. debt usage (?)
10) S&P margins: 10%+ net margins to be challenged, but no mean reversion
11) Be patient, buy the dips: Slow EPS and looming Fed hikes to bring dips
12) Republican Congress: Our focus is on corporate tax policy/ repatriation tax
13) Small caps: A better 2015 than 2014 seen, but large-caps still preferred
14) A lot of unexpected things can happen in a year: Derivatives can help
15) What are normal interest rates and the corresponding fair S&P PE?
And here’s what other top Wall Street strategists are expecting for next year:
- 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
- BTIG’s Dan Greenhaus: 2,200
- Citi’s Tobias Levkovich: 2,200
- Bank of America Merrill Lynch’s Savita Subramanian: 2,200
- UBS’ Julian Emanuel: 2,225
BMO’s Brian Belski: 2,250
- Morgan Stanley’s Adam Parker: 2,275
- Oppenheimer’s John Stoltzfus: 2,311
- RBC’s Jonathan Golub: 2,325