Bloomberg TelevisionDeutsche Bank’s David Bianco just unveiled its targets for the S&P 500 through 2015, joining peers David Kostin of Goldman Sachs and Andrew Garthwaite of Credit Suisse who also recently published their long-term targets on the S&P 500.
“We introduce a 2014 end target of 1850 and a 2015 end target of 2000 as the S&P PE climbs from about 15x today to 16x or higher,” wrote Bianco in a new note to clients.
That may sound bullish, but those numbers are actually relatively cautious. Garthwaite sees the S&P at 1,900 by the end of next year. Kostin sees it at 2,100 by the end of 2015.
Indeed, Bianco’s short-term, tactical forecast calls for the S&P to fall 5%.
Still, Bianco’s forecast is based on assumptions that may seem optimistic to some, especially those who believe valuations are already too high.
Reduced recession risks and S&P EPS grinding higher despite macro challenges has increased investor confidence in EPS sustainability and shifted the debate from normalized EPS to normalized long-term interest rates. Interest rates staying lower than history, even after the Fed stops purchases, as moderate growth persists making for an extended cycle, should drive the PE higher. But, investor confidence in the sustainability of growth and low interest rates will take time. Hence, we think it’s a multi-year path to PE expansion.
One big risk that sticks out is oil.
“But a significant decline in oil (WTI <$85) is a risk to S&P EPS as this cycle matures,” wrote Bianco. “An oil price decline would pressure S&P EPS via Energy earnings and weigh on global capex, which would challenge many Industrial and Materials S&P firms.”
Here’s a roundup of his new forecasts:
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