The New Year is here, and everyone wants to know what to expect of the stock market. The best way to find a believable prediction for the year is to look at expert forecasts for the stock market in 2015, which say that it will be extremely bullish. Investors are expecting a low-return year, and are focusing on Fed tightening and deflation in the coming year. Let’s break it down a little more.
Tom Lee, stock market guru, says that he expects the S&P 500 to hit 2,325 by the time 2015 draws to a close, which is a whopping 15% gain from its closing price on 17th December, 2014.
Breaking Down A Bullish 2015
Downside stemming in 2015 is going to lead to a fairly cautious buy side. Fed monetary tightening is a major factor that contributes to this. Other factors include Euro zone weakness, deceleration in China, the 40% year-over-year decline in oil, and the drop in 5-year inflation breakeven. 2015 will also see the need to replace structures and equipments in buildings, industries, and factories, since they have been degrading over time. The replacement costs will lead to a growth in investment spending and subsequent returns during the year.
Let The Good Times Roll
This is the title of a report by Piper Jaffray, one of the biggest bulls on Wall Street. The firm predicts good times ahead, despite the potential headwinds that the market might have to face. Technical strategists at the firm wrote that, with $2.3 trillion in money market funds, there is enough money on the sidelines to justify their unfettered optimism for 2015.
The report compares the market in 2015 to the 1950’s one, when interest rates were low and the bear market had broken to higher levels after reaching a double peak. Though the Fed’s ability to maintain rates at a low for a long time is debatable, it is still reasonable to expect a strong market.
Why We Want A Bull Market
The bull market will celebrate its sixth birthday in March 2015, propelled by a strong US economy. Even though stock dumping took place following geopolitical concerns and flare-ups, investors jumped back as soon as they saw evidence that the economy was resilient. There are several reasons to hope that this trend will continue into 2015. Even though US-based companies do half their sales outside their country, their profits are largely driven by the American economy.
In previous secular bull markets, like from 1952 to the mid-1960, investors made five times their money. From 1982 to 1999, they made fifteen times their money! This is why everyone is hoping that America is entering the early stages of another good run, and all the evidence seems to point to it.
A Cautionary Note
It’s important to note that, in a mature bull market like the one we have now, stock prices are high, and so is the level of volatility in the market. Every dollar that the companies in the S&P 500 earn is being bought by investors at a price of about $17.50. This is the highest that it has been since 2010. Since the valuations are high, investors could become nervous about holding stocks if there is a continued increase in stock prices. So while everyone is hoping with bated breath for the bullishness of the stock market to continue into 2015, there is always a flip side of possible concerns that you should keep in mind.
References:
- http://www.businessinsider.in/Stock-Market-Guru-Tom-Lee-Unveils-His-2015-Forecast-And-Boy-Is-It-Bullish/articleshow/45563485.cms
- http://www.bloomberg.com/image/ioBW3ycOTpM4.jpg
- http://www.cnbc.com/id/101988892#.
Image References:
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- http://www.bloomberg.com/image/ioBW3ycOTpM4.jpg
- http://i2.cdn.turner.com/money/dam/assets/141212143058-market-strategist-bull-620xa.png
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