- The US S&P 500 Index has surged 335% from the depths of the GFC.
- Credit Suisse expects the bull market will extend for some time yet, forecasting the index will hit 3,350 points by the end of 2019.
- It says earnings multiples “tend to expand throughout the cycle, including its latter stages”. It expects that will occur again on this occasion.
US stocks have been on a tear for the best part of a decade.
From the low of 667 points struck in early March 2009, the S&P 500 index has stormed higher, adding 335%, including 8.4% this year.
It’s been an amazing run, and one Credit Suisse’s Equity Research Strategy team thinks will continue for quite some time yet, fuelled by multiple expansion.
“Over the past year, profits have surpassed expectations on tax benefits, a strong economy, buoyant commodity prices and robust Tech results,” it says.
“While the market has advanced 8.5% year-to-date, stock prices have lagged earnings per share (EPS) growth, leaving equities 1.5 times multiple points cheaper than at the start of 2018.”
So how far will the bull market rally extend?
A lot, it says.
“Our 2019 price target of 3,350 implies an 11.4% annualised advance over the next 16 months,” it says.
“We expect earnings per share (EPS) growth to decelerate from 21.5% in 2018 to 7.7% in 2019, largely the result of fading tax impacts, and is in-line with historical averages.
“In the absence of recessionary risks, multiples tend to expand throughout the cycle, including its latter stages.
“We see prices to earnings multiples returning to their year-end 2017 levels.”
While there’s no shortage of risks out there both at home and abroad, Credit Suisse expects stocks will, as they have done so often in the post-crisis era, overcome all the threats before them.
“The next 16-months will be particularly tricky for investors, with the threat of yield curve inversion, potentially disruptive midterm elections, and continued Fed tightening,” it says.
“Despite these headline risks, we believe that solid economic and EPS growth, and benign recessionary risks, will be sufficient to propel the market higher.”
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