Are The Big Bank S&P 2018 Predictions Off The Mark?

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Big and small investors always want to know what the big banks think about where the S&P 500 and major equity indexes are going in the year ahead. They have not been very accurate over the past few years, and we think there is a good chance that they will not be this year either.  However, it is worth taking a look at what these banks have to say.

Marko Kolanovic, who serves as JPMorgan's Global Head of Macro Quantitative and Derivatives Strategy, said at the end of 2017, "The upcoming reduction of US corporate tax rates may be one of the biggest positive catalysts for US equities this cycle, and we think that little is priced into the market and hence there is potential for market upside. Clients are not repositioning portfolios until they see the reform passed."

Kolanovic set a price of 3,000 for his year-end prediction, saying that the US stock market is not even close to pricing in the full positive effect of a successful GOP tax bill, and forecasts that volatility will rebound from near-record levels next year, and sees tail risks mounting in the second half of the year.



I believe that Marko Kolanovic is one of the best strategists that Wall Street has had in many years. I also believe that what he said about the benefits of the tax bill not having fully been priced into the markets is 100% correct. No one knows for sure how high the S&P 500 might go, but what we do know is that the stock markets can't keep going up like they have been forever.  

The table above shows several year-end predictions from major banks.  Other predictions are as follows: Oppenheimer — John Stoltzfus — Target: 3,000; Bank of Montreal — Brian Belski — Target: 2,950; Jefferies — Sean Darby — Target: 2,855; Morgan Stanley — Mike Wilson — Target: 2,750; Scotiabank — Vincent Delisle — Target, 2,750; Stifel Nicolaus — Barry Bannister — Target: 2,750; and HSBC — Ben Laidler — Target: 2,650. Many of these bank forecasts have already hit in January.  What's your call for 2018?



Our View

This week has another round of big-name companies reporting earnings, including the following: $LMT $PFE $MCD $EA $AMD $BA $T $MSFT $FB $MDLZ $QCOM $DWDP $UPS $BABA $AAPL $AMZN $GOOG $V $XOM $CVX $MRK. According to FactSet, roughly a quarter of the companies in the S&P 500 have reported fourth-quarter results through Friday; and of those, 77% have beat earnings estimates. Then, when you throw in the global growth picture, what you have is a stock market melt-up.

The ES closed up 1.2% Friday, making its 14th record high in January. That exceeds the record number of highs for the S&P 500 in a single month every year since June of 1955. So when I say I have never seen anything like this, I haven't - I was born in 1958. Clearly, the earnings and global growth, along with Trump's tax cuts, are all playing out very positively. Our view is that we lean toward selling the early rallies and buying weakness. When I put out 2870 in the middle of last week I had no idea that the would trade up to 2876 on Friday; but in all honesty, this year has been all about the S&P going higher than expectations.


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