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2019 is coming a close, and now as we turn towards next year, I present to you a list of 10 stock market predictions for 2020. You can review my list of top 10 predictions for previous years 2016, 2017, 2018, and 2019 to see how I did.
As I did last year, I will start with number 10 and work our way up to number 1 over the final month of 2019. Enjoy!
Prediction 2: The S&P 500 Will Rise To 3,605 In 2020
With global growth returning, the U.S. economy surging to a 3% growth rate, U.S. rates on the rise, the U.S. dollar sinking, the return of inflation, commodities prices soaring, the reflation trade in full force, resulting in the Fed raising rates one-time, the S&P 500 will rise to 3,560 or roughly 11.2% in 2020.
After a big year in 2019, which saw the S&P 500 rebound by more than 30%, 2020 will be more subdued with the S&P 500 rising by around 11% to 3,605. The technical chart tells the tale better than anything else. I noted in October that the S&P 500 was heading for a massive break out based on the prior trends, which is what we got in November, as I expected. Now the chart is pointing to the S&P 500 index to rising to 3,605 in 2020.
The chart shows below how the index consolidated for a roughly 22 month period around the years 2012, 2015 and 2018. Starting in 2009 those periods were proceeded by the index rising by 711, 740, and 745 points. A similar rally starting from the 2019 break out point, brings the index to around 3605 by the end of 2020, and potentially as high as 3,650 by January 2021.
Valuations A Concern?
However, valuations will be very stretched should that happen. Based on my estimate for the S&P 500 to earn around $196.50 per share in 2021, the S&P 500 is currently trading at approximately 16.5 times 2021 numbers.
Historically, since 1988, the index has traded around 17 to 18 times one-year forward earnings. At 17 times earnings, the index is worth 3,340, and at 17.5, it is worth 3,440, at 18 times it is worth 3,540. It seems fair given the low-interest-rate environment for the S&P 500 to trade at 18 times one-year forward earnings.
However, to reach my target, the index would have to 18.4 times to reach my goal of 3,605. Again not, extremely high, but on the upper end of the historical average. As of today, the S&P 500 is trading around 18.5 times S&P Dow Jones earnings estimates for 2020 of $175.65.
Is the S&P 500 reaching 3,605 in 2020 a crazy call? No. Will it get there? We shall all find out together.
It makes the index rising to 3,605 in 2020 prediction number 2.
-Mike
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.