Wall Street's Sharpest Minds Predict Where Stocks Are Headed In 2012
Wall Street's top strategists have been unveiling their 2012 S&P 500 year end forecasts. Calls range from bold and ballsy to reluctant and conservative.
They see the S&P 500 ending 2012 slightly lower to up as much as 20% from yesterday's close of 1,254. Earnings are expected to be flat to up around 10%. Most see modest GDP growth in the U.S., and many expect more quantitative easing from the Fed. However, all warn that Europe remains a wild card. Most assume a eurozone recession in their base case scenario. But should Europe's debt crisis escalate and contagion ensue, all bets are off and stocks will tank. Then again, if the crisis is contained, then most would argue that the sky's the limit.
We've written before that our favorite line came from Nomura's 2012 Global Strategy Outlook:
Putting things bluntly, either we have another very serious credit event with consequences at least as severe as the Lehman Brothers bankruptcy, or stocks are probably a buy.
Anyway, we read through hundreds of pages of research published by 16 of Wall Street's very best. Here's a summary of their 2012 forecasts:
S&P 500 2012 Close:
Mean: 1,363
Range: 1,167 to 1,500
S&P 500 2012 EPS:
Mean: $102.40
Range: $96 to $106
(Note: This feature originally appeared on Business Insider on December 23, 2011. It also includes updates effective January 3, 2012)
Morgan Stanley - 1,167
2012 EPS: $100
Strategist: Adam Parker
Comments: "Our more cautious view on earnings stems from three key factors. 1) We see global GDP decelerating over the next few months in nearly every major geography. 2) Recent company results have been weak...This likely portends weak January results or April guidance. 3) The dollar has materially strengthened against the euro over the last few months and our analysis shows this is highly correlated to earnings downside, with select staples, technology, and materials likely impacted. Furthermore, inventory levels remain crucial, as several industries now have inventory-to-sales ratios well above five-year averages."
Note: This was updated on January 3. Previously, it showed 1,238 in the S&P 500 on EPS of $103.20.
Source: Morgan Stanley
Goldman Sachs - 1,250
Strategist: Adam Parker
Comments: "Our more cautious view on earnings stems from three key factors. 1) We see global GDP decelerating over the next few months in nearly every major geography. 2) Recent company results have been weak...This likely portends weak January results or April guidance. 3) The dollar has materially strengthened against the euro over the last few months and our analysis shows this is highly correlated to earnings downside, with select staples, technology, and materials likely impacted. Furthermore, inventory levels remain crucial, as several industries now have inventory-to-sales ratios well above five-year averages."
Note: This was updated on January 3. Previously, it showed 1,238 in the S&P 500 on EPS of $103.20.
Source: Morgan Stanley
Goldman Sachs - 1,250
2012 EPS: $100
Strategist: David Kostin
Comments: "In Europe, the sovereign debt crisis worsens almost daily. S&P 500 could drop 25% to 900 in a Euro collapse."
Source: Goldman Sachs
UBS - 1,325
Strategist: David Kostin
Comments: "In Europe, the sovereign debt crisis worsens almost daily. S&P 500 could drop 25% to 900 in a Euro collapse."
Source: Goldman Sachs
UBS - 1,325
2012 EPS: $101
Strategist: Jonathan Golub
Comments: "While we project the market to rise in 2012, we would not be buyers at current levels and anticipate more attractive entry points in the future. 2012 should again be a struggle between stronger domestic fundamentals and macro risks. Despite recent gestures by central bank officials, we believe that equities will struggle in the face of European recession currently being forecast by UBS economists."
Source: UBS
Barclays Capital - 1,330
Strategist: Jonathan Golub
Comments: "While we project the market to rise in 2012, we would not be buyers at current levels and anticipate more attractive entry points in the future. 2012 should again be a struggle between stronger domestic fundamentals and macro risks. Despite recent gestures by central bank officials, we believe that equities will struggle in the face of European recession currently being forecast by UBS economists."
Source: UBS
Barclays Capital - 1,330
2012 EPS: $103
Strategist: Barry Knapp
Comments: "We expect a difficult range bound 1H12, with 1150 our expected value around mid- year. Equities should fare better in the back half as the economic fallout in Europe dissipates and the U.S. election becomes priced, leading to a late year rally."
Source: Barclays Capital
Credit Suisse - 1,340
Strategist: Barry Knapp
Comments: "We expect a difficult range bound 1H12, with 1150 our expected value around mid- year. Equities should fare better in the back half as the economic fallout in Europe dissipates and the U.S. election becomes priced, leading to a late year rally."
Source: Barclays Capital
Credit Suisse - 1,340
2012 EPS: $96
Strategist: Andrew Garthwaite
Comments: "Equities will likely be guided by two key issues in 2012: a) investors moving into equities as a deflationary outcome is averted when there is de-facto co-ordinated QE in late Q1; and b) the movements in tail risks (which we see predominantly coming from the Euro crisis, aggressive fiscal tightening in the US and Chinese housing)."
Source: Credit Suisse
Bank of America - 1,350
Strategist: Andrew Garthwaite
Comments: "Equities will likely be guided by two key issues in 2012: a) investors moving into equities as a deflationary outcome is averted when there is de-facto co-ordinated QE in late Q1; and b) the movements in tail risks (which we see predominantly coming from the Euro crisis, aggressive fiscal tightening in the US and Chinese housing)."
Source: Credit Suisse
Bank of America - 1,350
2012 EPS: $104.50
Strategist: Savita Subramanian
Comments: "Continued macro uncertainty combined with healthy but slowing earnings growth lead us to prefer investments with higher quality, secular growth, and sustainable and growing yield."
Source: Bank of America
Wells Fargo - 1,360
Strategist: Savita Subramanian
Comments: "Continued macro uncertainty combined with healthy but slowing earnings growth lead us to prefer investments with higher quality, secular growth, and sustainable and growing yield."
Source: Bank of America
Wells Fargo - 1,360
2012 EPS: $101.99
Strategist: Gina Martin Adams
Comments: "To get there, European and US policymakers will likely have to create just the right mix of ingredients to fill the punchbowl to the satisfaction of investors."
Source: Wells Fargo
Citigroup - 1,375
Strategist: Gina Martin Adams
Comments: "To get there, European and US policymakers will likely have to create just the right mix of ingredients to fill the punchbowl to the satisfaction of investors."
Source: Wells Fargo
Citigroup - 1,375
Tobias Levkovich
Citi
Strategist: Tobias Levkovich
Comments: "A constructive equity market view for 2012 is appropriate given poor investor sentiment, supportive US credit conditions, attractive valuation and depressed earnings expectations."
Source: Citi
Nomura - 1,400
2012 EPS: $103
Strategist: Ian Scott
Comments: "In many respects, the US has the best fundamentals of all of the equity regions, but the issue is how sustainable they are in 2012. The market had a taste of the impact of slowing US growth during August when several prominent business and consumer confidence surveys posted much weaker-than-expected results."
Source: Nomura
Oppenheimer - 1,400
Strategist: Ian Scott
Comments: "In many respects, the US has the best fundamentals of all of the equity regions, but the issue is how sustainable they are in 2012. The market had a taste of the impact of slowing US growth during August when several prominent business and consumer confidence surveys posted much weaker-than-expected results."
Source: Nomura
Oppenheimer - 1,400
2012 EPS: $101
Strategist: Brian Belski
Comments: "While single-digit returns are admittedly not exciting, we continue to believe the relative stability of US fundamentals and economic conditions will provide an attractive alternative compared to other more volatile assets around the world in 2012."
Source: Oppenheimer & Co.
S&P Capital IQ - 1,400
Strategist: Brian Belski
Comments: "While single-digit returns are admittedly not exciting, we continue to believe the relative stability of US fundamentals and economic conditions will provide an attractive alternative compared to other more volatile assets around the world in 2012."
Source: Oppenheimer & Co.
S&P Capital IQ - 1,400
2012 EPS: N/A
Strategist: Sam Stovall
Comments: "History indicates, but does not guarantee, that the S&P 500 return in 2012 will likely be positive."
Source: S&P Capital IQ (via AdvisorOne)
JP Morgan - 1,430
Strategist: Sam Stovall
Comments: "History indicates, but does not guarantee, that the S&P 500 return in 2012 will likely be positive."
Source: S&P Capital IQ (via AdvisorOne)
JP Morgan - 1,430
2012 EPS: $105
Strategist: Thomas Lee
Comments: "This based on a target multiple of 13.0x estimated 2013 EPS of $110. From any historical lens, this P/E multiple appears conservative, representing an earnings yield of 7.7% (compared to JULI HG yield of 4.4%). We see Cyclicals and Financials outperforming, with Financials as our top pick for 2012."
Source: JP Morgan
Federated Investors - 1,450
Strategist: Thomas Lee
Comments: "This based on a target multiple of 13.0x estimated 2013 EPS of $110. From any historical lens, this P/E multiple appears conservative, representing an earnings yield of 7.7% (compared to JULI HG yield of 4.4%). We see Cyclicals and Financials outperforming, with Financials as our top pick for 2012."
Source: JP Morgan
Federated Investors - 1,450
2012 EPS: $110
Strategist: Stephen Auth
Comments: "Call us Charlie Brown kicking the proverbial football held by his dear friend Lucy, but we are reinstating our 2011 S&P 500 target of 1,450 for 2012. We think this will be powered by the two forces that in 2011 neutralized one another (earnings up, P/Es down) eventually working in unison. We also believe that once this process starts, the upside on equities will be substantially higher than 1,450, though it may take several years to achieve this."
Source: Federated Investors
Deutsche Bank - 1,500
Strategist: Stephen Auth
Comments: "Call us Charlie Brown kicking the proverbial football held by his dear friend Lucy, but we are reinstating our 2011 S&P 500 target of 1,450 for 2012. We think this will be powered by the two forces that in 2011 neutralized one another (earnings up, P/Es down) eventually working in unison. We also believe that once this process starts, the upside on equities will be substantially higher than 1,450, though it may take several years to achieve this."
Source: Federated Investors
Deutsche Bank - 1,500
2012 EPS: $106
Strategist: Binky Chadha
Comments: "We target 1500 for the S&P 500 by end 2012(14x $106) on the view that healthy corporate fundamentals, cheap valuations, dividend growth and a strong demand-supply balance will trump concerns about the risks."
Source: Deutsche Bank
RBC (no S&P 500 target)
Strategist: Binky Chadha
Comments: "We target 1500 for the S&P 500 by end 2012(14x $106) on the view that healthy corporate fundamentals, cheap valuations, dividend growth and a strong demand-supply balance will trump concerns about the risks."
Source: Deutsche Bank
RBC (no S&P 500 target)
2012 EPS: $101
Strategist: Myles Zyblock
Comments: "The conviction we have in our year-ahead earnings estimate, as you can hopefully appreciate, is quite low. If the European crisis goes system-wide, it is easy to imagine a shock that is large enough to derail our fragile recovery. Earnings would more likely be down by 20% versus our implicit growth rate of 4.2%."
Notes: Zyblock doesn't provide a year-end target for the S&P 500. However, he notes: "We remain neutral equities."
Source: RBC
Richard Bernstein Advisors (no S&P 500 target)
Strategist: Myles Zyblock
Comments: "The conviction we have in our year-ahead earnings estimate, as you can hopefully appreciate, is quite low. If the European crisis goes system-wide, it is easy to imagine a shock that is large enough to derail our fragile recovery. Earnings would more likely be down by 20% versus our implicit growth rate of 4.2%."
Notes: Zyblock doesn't provide a year-end target for the S&P 500. However, he notes: "We remain neutral equities."
Source: RBC
Richard Bernstein Advisors (no S&P 500 target)
2012 EPS: N/A
Strategist: Richard Bernstein
Comments: "Forecasts for 2012 are complicated even more by the apparent tug-of-war between markets and politicians. Identifying and timing the ebb and flow of this tug-of-war during 2012 is likely to be investors’ biggest challenge. Fundamentals suggest avoiding credit-related investments. Politics argue the opposite."
Notes: Bernstein does not provide a year-end target or EPS estimate. However, he does recommend overweighting U.S. stocks, particularly small-cap U.S. stocks, in your portfolios.
Source: Richard Bernstein Advisors
BONUS: Goldman Sachs Asset Management - 1,400
Strategist: Richard Bernstein
Comments: "Forecasts for 2012 are complicated even more by the apparent tug-of-war between markets and politicians. Identifying and timing the ebb and flow of this tug-of-war during 2012 is likely to be investors’ biggest challenge. Fundamentals suggest avoiding credit-related investments. Politics argue the opposite."
Notes: Bernstein does not provide a year-end target or EPS estimate. However, he does recommend overweighting U.S. stocks, particularly small-cap U.S. stocks, in your portfolios.
Source: Richard Bernstein Advisors
BONUS: Goldman Sachs Asset Management - 1,400
2012 EPS: N/A
Strategist: Jim O'Neill
Comments: "One thing for sure we can say about 2012 is that there will be no shortage of things to think about. In some ways, for the discerning analyst and the ambitious alpha generating fund manager, you couldn’t wish for a better environment. The only dilemma is that it is probably quite easy to get something(s) wrong!"
Source: Goldman Sachs Asset Management
BONUS: Seabreeze Partners - >1527.46
Strategist: Jim O'Neill
Comments: "One thing for sure we can say about 2012 is that there will be no shortage of things to think about. In some ways, for the discerning analyst and the ambitious alpha generating fund manager, you couldn’t wish for a better environment. The only dilemma is that it is probably quite easy to get something(s) wrong!"
Source: Goldman Sachs Asset Management
BONUS: Seabreeze Partners - >1527.46
Doug Kass
Strategist: Doug Kass
Comments: "The beginning of the New Year brings a stable and range-bound market. A confluence of events, however (discussed further in the body of the 15 Surprises for 2012), allows for the S&P 500 to eclipse the 2000 high of 1527.46 during the second half of the year. The rally occurs as a powerful reallocation trade out of bonds and into stocks provides the fuel for the upside breakout. The market rip occurs in a relatively narrow time frame as the S&P 500 records two consecutive months of double-digit returns in summer/early-fall 2012."
Note: This was added on January 3.
Source: TheStreet.com
BONUS: BlackRock - 1,350
2012 EPS: $100 run rate
Strategist: David Kotok
Comments: "We expect some early strength in US stocks. We see the earnings rate for the S&P 500 at about an $100 run rate. That puts the market at less than 13 times earnings. Those earnings support a dividend yield higher than the riskless ten-year treasury yield. The equity risk premium is very high. US stocks look cheap by many measures."
Note: This was added on January 3.
Source: Cumberland Advisors
BONUS: Blackstone - 1,400
Strategist: David Kotok
Comments: "We expect some early strength in US stocks. We see the earnings rate for the S&P 500 at about an $100 run rate. That puts the market at less than 13 times earnings. Those earnings support a dividend yield higher than the riskless ten-year treasury yield. The equity risk premium is very high. US stocks look cheap by many measures."
Note: This was added on January 3.
Source: Cumberland Advisors
BONUS: Blackstone - 1,400
2012 EPS: N/A
Strategist: Byron Wien
Comments: Earnings continue to grow at American corporates, with leaders taking advantage of reduced commodity prices and greater technological integration decreasing labor costs. Together, it pushes the S&P 500 over 1400.
Note: This was added on January 3.
Source: Blackstone
BONUS: Jefferies - double-digit returns
Strategist: Byron Wien
Comments: Earnings continue to grow at American corporates, with leaders taking advantage of reduced commodity prices and greater technological integration decreasing labor costs. Together, it pushes the S&P 500 over 1400.
Note: This was added on January 3.
Source: Blackstone
BONUS: Jefferies - double-digit returns
2012 EPS: modest earnings growth on stable margins
Strategist: Sean Darby
Comments: "While equity relative valuations are attractive for equities against other financial assets, a reversal of flows out of income and commodities are the most likely catalysts for share price appreciation, in our view."
Note: This was added on January 9.
Source: Jefferies
BONUS: The Reformed Broker - 1,300 to 1,325
Strategist: Sean Darby
Comments: "While equity relative valuations are attractive for equities against other financial assets, a reversal of flows out of income and commodities are the most likely catalysts for share price appreciation, in our view."
Note: This was added on January 9.
Source: Jefferies
BONUS: The Reformed Broker - 1,300 to 1,325
Strategist: Joshua Brown
Comments: "Stocks are historically cheap in the US, but they have been cheap for a long time. The discounting is coming from systemic uncertainty and the frustratingly slow pace of GDP growth. It is hard to see multiple expansion coming when interest rates are already at their lowest levels possible, government spending is guaranteed to shrink (one quarter of GDP) and corporate profit margins are already at absurdly high (some would say unsustainable) peak levels."
Note: This was added on January 3.
Source: Bespoke Investment Group
Read more: http://www.businessinsider.com/top-equity-strategists-forecast-2012-2011-12?op=1#ixzz1nbgRmRhV
