After seeing the S&P 500 surge 210% from it’s March 2009 low, Wall Street’s stock market strategist have become increasingly conservative with their forecasts. Most see single-digit returns in 2015.
Oppenheimer’s John Stoltzfus isn’t one of those strategists.
“We initiate a target for the S&P500 at the end of 2015 at 2,311, which is 12% above the market’s close on Friday, November 21,” Stoltzfus wrote on Monday. “Our forecast projects earnings of $US126 per share.”
This is in contrast to Goldman Sachs’ David Kostin, who last week forecast the S&P 500 would go no higher than 2,100 next year. Even UBS’s Julian Emanuel, who’s 2015 outlook report was titled “Roll Tide, Roll,” sees the S&P going to 2,225.
So, what’s behind Stoltzfus’ call? From his note: “We expect the market to reach our target level on a combination of: sustained economic growth, corporate revenue and earnings growth (on the back of US expansion and process of international recovery), as well as further multiple expansion justified by the continued relative attractiveness of US equities on valuation, dividends and buy backs.”
Importantly, Stoltzfus believes that investors have yet to get excited about this market. From his note (emphasis ours):
It’s not so much that the bull is tired or that the proverbial “Wall of Worry” has fallen away but that excepting the occasional bursts of excitement after pullbacks and announcements investors have proven to be more thoughtful about “what could go wrong” than in any bull market we’ve experienced in more than 31 years on Wall Street.
It’s no secret that “animal spirits” and “irrational exuberance” have been in measured if not short supply this bull market. We think that’s really a good thing and likely to carry stocks higher toward our target in 2015.
Stoltzfus likes cyclical stocks over defensive stocks in this environment. In particular, he recommends going overweight industrials materials, technology and consumer discretionary stocks.
For some more context, here’s a chart from Stoltzfus that shows how strong this current bull market has been.