The S&P 500 Will Rise By More Than 15% to 3,100 In 2018

 

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Prediction #1

There is no doubt, the rise in the S&P 500 in 2017, caught most investors off guard. The index rose by nearly 20 percent and will finish the year just below 2,700 barring an unforeseen sell-off in the final day. The market is set up to continue rising in 2018, with the improving US and global economic backdrop, and a tax reform bill that has now been sign into law, and expectations for strong earnings growth. That takes us to prediction #1 for 2018: The S&P 500 Will Rise By More Than 15% to 3,100 In 2018

It comes down to simple basic math and has to do with earnings growth.  According to Dow Jones S&P Indices, estimates are calling for earnings in 2017 of $114.70, and that is expected to grow by 18 percent in 2018 to $135.40.

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data by YCharts

Earnings Multiple

The S&P 500 has been steadily trading at around 23 times trailing earnings now since the fourth quarter of 2015. On average, the S&P has traded at a trailing earnings multiple of just over 21.5 since 1988, with a  standard deviation of about 6. It means the index could trade in a range of 15.5 to 27.5 and be within the normal range if we exclude the four quarters during the financial crisis of 2008-2009, as seen in the chart below.

data by YCharts

S&P 500 Rises To 3,100

At the current price on the index of 2,686 and the current estimates for 2018, the market currently trades at only 19.8 times 2018 estimates, which is below the average, but within the standard distribution curve.

At 21.5 times 2018 estimates the index would rise to 2910.

But should the index continue to trade around 23 times earnings estimates, it would seem a rise to 3,100 could be in the cards for 2018.

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The purpose of the 10 predictions is for fun and to think about the year to come. It helps to organize thoughts and think about potential themes and trends that could develop. See our 10 predictions for 2017 and judge for yourself how we did. 

10 Predictions For 2018:

10. Tesla’s Stock Price Could Nearly Double In 2018

9. US Real GDP Will Grow at 4% or More In 2018 – 10 Predictions

8. Why The FANG’s Will Lead Stocks Higher In 2018

7. Oil will rise to roughly $75 per barrel in 2018, a rise of just over 30 percent.

6. Inflation will increase to 3 percent in 2018 on a year-over-year basis on the Consumer Price Index.

5. 10-Year Yields rise to 3 percent.

4. Biotech Stocks Will Be Best Performing Sector In 2018

3. Verizon Buys CBS and Viacom In 2018

2. Apple Buys Netflix For $110 Billion In 2018

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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.

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Tags: #sp500 #predictions2018

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