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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.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.