2016 Market Forecasts from the Street
Major stock indices have had quite a ride in 2015, as market volatility was a fairly common theme. As the trading year winds down, with the Fed finally raises interest rates by 0.25% percentage point, and oil and other commodities experiencing substantial declines, the Dow Jones Industrial Average and the S&P 500 are trading in the red, but are fighting to close in the black for 2015. The Nasdaq, meanwhile, continues to trade higher for the year. So what are some of the bigger ‘Houses on the Street’ forecasting for 2016?
1. J.P. Morgan: Equity Upside Will Closely Be Linked to Earnings Growth Delivery
J.P. Morgan Chase (NYSE:JPM), which is recognized as the largest bank in the United States, expects the S&P 500 to close out at 2,200 (which implies a 4%-5% upside in price) by the end of 2016. They believe the negative earnings effect from energy is likely to fade away, but the strong U.S. dollar will continue to exert some drag causing further negative revisions to current 2016 earnings growth estimates.
2. Bank of America: The Return of Value Investing Might Surprise Investors in 2016
Bank of America (NYSE:BAC), another massive financial services firm, says they’ve “been agnostic on large-cap style benchmarks for several years… but when profits accelerate, value wins.” The bank believes credit-sensitive investments are 2016’s biggest risks, and the S&P 500 is the ultimate anti-credit play, as it’s filled with large companies that have healthy balance sheets and above-average cash balances. They (as well as J.P. Morgan) see the S&P 500 closing at 2,200 by the end of 2016.
3. Wells Fargo: Large-Cap Stock Earnings Growth Likely to Continue
Wells Fargo (NYSE:WFC), one of the largest and multifaceted banks in the country, says it’s “most attracted to U.S. large-cap and developed international large-cap stocks.” Overall, they foresee a roughly 6%-7% increase in operating earnings for the S&P 500, aided by an improvement in the Energy sector. This San Francisco-based bank isn’t as hopeful with small and mid-cap stocks, as their expectations are modest over the next 12 months.
4. Barclays: Markets Will Be Driven More By Value than Quality or Growth
Barclays (NSYE:BCS), an international financial services firm whose roots date back nearly 120 years, thinks that in terms of sectors, the market will shift its focus on value and favor Financials. The company also believes investors should consider some late-cycle cyclicals such as Materials, Industrials and Energy. Conversely, Barclays thinks Healthcare, Utilities and Telecom could struggle.
5. Deutsche Bank: Still-low Treasury yields despite Fed hikes to boost S&P
Deutsche Bank, whose global presence expands more than 70 countries, has S&P 500 targets of 2100 for year end 2015 and 2250 for 2016, which represents 5%-10% upside. “Health Care and Tech – which represent more than one-third of the S&P 500 – are why we are reasonably bullish for 2016, while Energy and Industrials remain a significant concern,” the firm said. They also don’t believe a recession looms or S&P profits will fall again in 2016.
6. Credit Suisse: Most Cautious Strategic Stance Since 2008
Credit Suisse (NYSE:CS), one of the larger global financial services firms, isn’t quite as hopeful as some of the others, as it has its most cautious strategic stance since 2008. The company is lowering its mid-2016 S&P 500 target down to 2,150, the same as its year-end target. Credit Suisse cites increasing macro headwinds (deflation exported by China, the first Fed rate rise in 9.5 years); U.S. equity markets seemingly overvalued; and several warning signals, such as credit spreads widening, M&A activity reaching problematic levels, earnings momentum at a 4-year low.