As the market was ramping up back in January, analysts suggested this might get interesting, with increased volatility in the first half of 2018 because excessive optimism in both the markets and economic assumptions had become extreme. As a result, analysts had lofty targets for the markets, but these were expected to come later in the year.
Canaccord Genuity was a firm that posited the Standard & Poor’s 500 index (SPX) gains would be second-half loaded, and we are closing in on that part of the year. Ultimately the firm is raising its 2018 SPX target to 3,200 from 3,100. Looking even further ahead, Canaccord Genuity sees the SPX hitting 3,360 in 2019.
It is key to remember the fundamental backdrop of positive earnings should power the markets higher, and per-share earnings are expected to be up over 20% in 2018, with further growth expected entering 2019.
Canaccord Genuity went on to point out that earnings move with the direction of the economy, and despite global growth slowing, the data in the United States remain very positive, as seen in recent data.
In fact, the current Atlanta Fed GDP Now forecast calls for second-quarter growth of nearly 5%. Given the solid backdrop of a more business-friendly environment, small business and consumer confidence suggests it would take an unforeseeable shutdown in credit to cause an economic catastrophe to make the firm’s 2018 earnings per share assumption too high. There is no sign of a shutdown in credit at this point, despite the rise in rates.
Tony Dwyer detailed in the report that:
We are raising our 2018 estimated S&P 500 (SPX) operating EPS from $155/sh to $160/sh. We are maintaining our multiple assumption of 20x, which causes our 2018 SPX target to move from 3100 to 3200. We are also initiating our 2019 SPX target of 3360, using a simple nominal growth rate in operating EPS of 5% ($168), and the same valuation parameters.