Wall Street’s research departments include both equity strategists and equity analysts.
Strategists publish targets for stock markets as a whole from their big picture analysis (i.e top down analysis).
Analysts publish price targets on individual stocks based on their analyses of the companies they cover (i.e. bottom up analysis).
Unfortunately, strategists’ expectations rarely line up with the aggregation of analysts’ expectations (You can derive analysts’ implied target for the S&P 500 by combining their price targets for the respective companies they cover).
And according to 10,706 ratings compiled and analysed by FactSet, strategists expect the market to be lower in 12 months while analysts (in aggregate) expect the market to be higher.
From FactSet’s John Butters:
Industry analysts in aggregate predict the S&P 500 will see a 4.8% increase in price over the next twelve months. This percentage is based on the difference between the bottom-up target price and the closing price for the index at the end of December. Aggregating the mean target price estimates (based on company-level estimates submitted by industry analysts) for all 500 companies in the index, the bottom- up target price for the S&P 500 is 1937.91, which is 4.8% above the closing price of 1848.36. It is interesting to note that this is the lowest percentage price increase predicted by the industry analysts for a year in the past five years (2008 — 2013).
Market strategists, on the other hand, predict the S&P 500 will see a 2.3% decrease in price over the next twelve months. This percentage is based on the difference between the top down mean target price and the closing price for the index at the end of December. Taking the average of the eight index- level target price estimates submitted to FactSet by market strategists, the top-down mean target price for the S&P 500 is 1806.25, which is 2.3% below the closing price of 1848.36.
“Who will be correct?” asked Butters. “It is interesting to note that over the past three years (on a monthly basis), the industry analysts have overestimated the closing price of the index 12 months later by 2.6%, while the market strategists have underestimated the closing price of the index 12 months later by 2.6%.”
Note: The 14 strategists followed by Business Insider expect the S&P 500 to top 1,950.