Wall St. Strategists 2017 S&P 500 Projections

January 10, 2017 | by James Behr Jr & Christopher Paleologus

As 2016 has come to an end, we like to take a look back at the projections for the S&P 500 index that top Wall St. strategists made for the year and what they are expecting for 2017. Returns in the S&P 500 for 2016 were aided by a 4.64% gain following the presidential election and finished the year up 11.96%. The average projection among strategists for 2016 was an 8.30% gain in the S&P 500. The chart below contains their 2016 predictions and percentage off target and their 2017 predictions and the percentage gain/loss that would yield in the S&P 500 index. As a group, the average among these strategists is a 5.09% gain in the S&P 500. Analysts expect uncertainty and volatility throughout the year as economic policies and actions of a new President and Congress can significantly impact the markets. Comments from each of the strategists can be found beneath the chart below.

 

 

Societe Generale– Roland Kaloyan– 2400
“In the US, the S&P500 should continue to be supported by higher growth, higher inflation and lower taxes, but the upside is limited given its already high valuation and higher Fed rates.”

Goldman Sachs– David Kostin– 2300
“In 2017, we expect the stock market will be animated by competing views of whether economic policies and actions of President Trump and a Republican Congress instill hope or fear…’Hope’ will dominate through 1Q 2017 as S&P 500 climbs by 9% to 2400…’Fear’ is likely to pervade during 2H and S&P 500 will end 2017 at 2300, roughly 5% above the current level.”

Jefferies– Sean Derby– 2325
“…Equities are benefiting from the unwinding of the momentum trade in fixed income and reach for yield, but a strong dollar will act as a ceiling for earnings and will tighten liquidity conditions…The valuation starting point for the S&P 500 is not kind and neither is the outlook for earnings (excluding corporate tax cuts). The good news is that wages are set to grow much faster than at any other point in this cycle. Four things to consider. DIMP. Dollar strength. Inflation. Margins. Pricing Power. However, the main headwind is higher US treasury yields. The major risk would be if US real interest rates climbed too quickly or if credit spreads were to widen dramatically.”

BMO– Brian Belski– 2350
“…bouts of increased doubt and rhetoric are sure to generate consternation, with volatility representing a constant theme. However, the resiliency of US companies has proven itself time and time again throughout this bull market, and investors should avoid trying to time the market, in our view. Thus, we believe there is no reason to expect that a dramatic reversal in longer-term fundamentals is imminent. Rather, the slope of our long-standing secular bull market call remains positive…

Credit Suisse– Andrew Garthwaite– 2300
“Our judgement is that the rhetoric on protectionism and immigration will be toned down, while fiscal stimulus, corporate tax cuts, de-regulation and repatriation of cash held overseas are all potentially growth and EPS positive. Almost all of President-elect Trump’s policies are inflationary and thus support a bond-to-equity switch.”

Blackrock– Heidi Richardson–  2400
“The market’s advance since the election suggests investors believe the economic-stimulus baton will be passed smoothly from the monetary realm to fiscal authorities after years of exertions by the Fed to promote growth. As a result, the search for yield trade of recent years is vulnerable… the biggest beneficiaries of a reduction in taxes for repatriated cash will be technology and health-care stocks, as both industries have substantial cash overseas. But don’t assume it will go to capital investment when it comes home. Historically repatriated funds have been spent on stock buybacks and dividends.”

Morgan Stanley– Adam Parker– 2300
“We expect uncertainty and volatility will be larger in 2017 than in previous years given the Republican Sweep and the impact this will certainly have on some policy. However, our gut instinct is to fade the current optimism about reflation and be long a little legislative gridlock relative to the consensus banter. After all, terms like ‘budget neutrality’ are probably not permanently extirpated from the American vocabulary just because DJT is the President-elect. For the coming year, we think it isn’t an ‘if’ but a ‘when’ to fade the reflation trade, but our best guess is that we stay long reflation until closer to inauguration and fade it sometime after that.”

Barclays– Jonathan Glionna– 2400
“…Our base case forecasts indicate 3.4% growth in sales for the S&P 500 in 2017, after two years of stagnation. We expect a rebound in U.S. nominal GDP to underpin the recovery. Europe continues to offer dim prospects for sales growth although the more impactful drag comes from the U.S. dollar. While sales growth is the primary driver of EPS growth, costs certainly matter and wage inflation dampens our expectations…”

Citigroup– Tobias Levkovich– 2325
“Trumped up could trickle down (to EPS)…Tax cuts could be quite stimulative to S&P 500 EPS. If one assumes a 20% statutory tax rate with no deductions versus a current effective tax rate running at near 27%, that might add as much as $12 of 2017 EPS to Citi’s current estimate of $129…A stronger US dollar is plausible if growth and inflation ensue, thereby limiting the earnings benefits. Higher rates from the Fed and possible “crowding out” plus inflation pushing bond yields upward are viewed as offsetting negatives especially if the dollar climbs and eats into earnings. Every 10% move in the greenback might shift EPS by around 2% on an annual basis and therefore must be tracked as well…

Bank of America– Savita Subramanian– 2300
“…2017 could be anything but normal. We see fat tails and a binary set of outcomes. Against the backdrop of elevated valuations, slow growth and limited scope for credit expansion, our target and the recent rally are reliant on policymakers’ ability to deliver growth next year. Trump’s comments on trade and GOP comments on deficits/spending could drive big market swings in the coming months. Risk-reward will be more important than absolute targets. ”

JP Morgan Chase, Dubravko Lakos-Bujas– 2400
“Equity upside will be closely linked to improving earnings delivery. Prospects of expansionary fiscal policies under a relatively easy monetary backdrop are likely to help support further re-rating of the equity multiple…but both the passage and efficacy of these measures are far from certain at this moment. Stronger US dollar and higher rates are main sources of downside risk for corporate earnings and the equity multiple, especially if those trends are not supported by stronger growth.”

Deutsche Bank– David Bianco– 2350
“Republican sweep economic policies will be more about deregulation and tax cuts than protectionism or huge spending. We think so because big actions require legislation, which Congress will shape. This Congress is likely to resist surging deficits, protectionism and executive overreach… The corp tax rate is likely cut in the first 100 days and other proposed major corp tax code changes deferred… A 15% corp tax rate is unlikely, but if cut to 25% from 35% it would align with the OECD avg and likely raise the deficit by only ~0.5% of GDP until growth can offset it. Cutting to 25% cuts repatriation taxes on a permanent basis and will also provide small businesses that want to reinvest their profits for growth a more tax efficient alternative than pass through entities. A 25% corp tax rate, all else equal, would boost S&P EPS by $10 and support a quick S&P rally to 2300 and 2400 by 2017 end.”

S&P Capital IQ- Sam Stovall– 2335
“However, if we are wrong, we think we are most likely underestimating the year’s potential growth in GDP, [earnings-per-share] and price-appreciation potential as a result of the favorable impact on consumer and investor confidence.”

UBS– Julian Emanuel– 2300
“…Age alone does not end the Bull– a recession, catalyzed by rising rates or an exogenous shock, has begun shortly after each major Top of the past 25 years. And while Fed hikes “start the clock”, neither valuation excesses nor signs of a recession are apparent. 2017 should see balance sheet strength, a return to earnings growth after a two year drought, and rising interest rates.”

Oppenheimer– John Stoltzfus– 2450
“Our expectations are for stocks to find further support in the New Year from a continued and further improvement of the current economic expansion stateside along with additional progress that we expect to see in the modest recovery abroad (aided by accommodative monetary policy both domestically and abroad) even as geopolitical and populist headwinds abound… Our expectations are for tailwinds for the equity market stateside as elements of the stimulative fiscal agenda broadly outlined by President elect Donald Trump are implemented. In our view, this could provide further support for stock prices and some upside risk to our benchmark target.”

RBC Capital– Jonathan Golub– 2500
“Following two years of near-zero growth, we expect profits to re-accelerate. A better operating environment for Financials and Energy should contribute to faster growth in 2017 (+7.6%). 2018 EPS growth (+9.4%) assumes a 2–3% impact from Trump policies. This place holder for changes in taxes, regulation, and spending is quite modest, in our view, as an adjustment to corporate taxes alone could easily double this impact…We believe multiples will advance more quickly than earnings over the near term, as analysts wait for clarity on Trump policies before adjusting estimates.”

Piper Jaffrey– Craig Johnson– 2424
“We continue to think that this market likes to run. Sector rotation is a sign of health in the market, it always has been. As we continue to see this market rotate, we’re going to continue to see new highs get put in. Dollar moving slightly higher, which is a good sign, we have oil prices coming up, ten year bond yields coming up, and even after fed rate hike, we’re seeing rates moving up, two to ten spread widening out; so many positive things happening.”

Canaccord– Tony Dwyer– 2340
“…Despite the likelihood of a temporary pause in the upside given recent ramp, we remain buyers because: (1) our positive fundamental core thesis remains in place, (2) economic data and EPS continues to improve, and (3) our key tactical indicators suggest a favorable risk/reward environment…”


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