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