Six days into the new year, RBC’s Jonathan Golub has become the second Wall Street strategist to boost his 2014 price target for the S&P 500 index.
The reason: stocks have risen quickly since the FOMC’s December 18 decision to begin winding down the Federal Reserve’s quantitative easing program, causing some to rethink just how good of a year it could be for the market.
In a note to clients, Golub writes:
Raising Our 2014 Price Target
On October 2, we introduced our 2014 S&P 500 target at 1,950, based on EPS of $US119 and $US130 for 2014 and 2015. Further, we forecast that multiples would drift from 14.4x to 16.0x over the next several years, finishing 2014 at 15.0x. Our target was consistent with 16.0% potential upside through year-end 2014 (12.6% annualized).
The crux of the thesis that we laid out in October remains unchanged.
Slack in the economy will keep the Fed from disruptively removing accommodation
Risk-averse corporate behaviour will drive EPS higher
Valuations should renormalize closing the gap between earnings yields and interest rates
We are raising our year-end 2014 price target to 2,075 from 1,950. The re-rating (re- normalization) process that we anticipated is happening faster than originally expected. Hence, we are raising our 2014 year-end-target multiple to 16.0x.
Golub’s 2075 target now makes him — along with JPMorgan’s Tom Lee, who is also forecasting 2075 on the index by the end of the year — the most bullish strategist on Wall Street.
Last week, Tobias Levkovich, Citi’s chief U.S. equity strategist, hiked his 2014 S&P 500 target, citing similar factors.
“The S&P 500 has basically achieved its mid-2014 target as tapering delays and fiscal progress have contributed to lower risk premiums and higher P/E multiples,” wrote Levkovich. “When laying out a 12-month view in May 2013, the notion of 1,800-1,850 on the S&P 500 by June 2014 was considered likely, but these gains have been pulled forward into 2013.”
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