CREDIT SUISSE: Here are 6 things that could make or break the stock market in 2018
Thomson Reuters
Credit Suisse is out early with its forecasts for US stocks and the economy next year, and they are bullish.
The firm's equity strategists see the S&P 500 rising to 2,987 by year-end, implying an annualized gain of about 11%. They forecast earnings-per-share growth of 6% to 7% over the next two years, from $130 this year to $147 in 2019.
"Our market views are predicated on a supportive economic backdrop, with benign recessionary risks and a pickup in near-term indicators," said the US equity strategists led by Jonathan Golub, in a note on Tuesday. "While we expect more muted longer-term growth, this has focused corporations on cost containment and the return of capital to shareholders, extended the business cycle and lowered discount rates."
Credit Suisse is also betting on the continued outperformance of favored sectors in 2017. The tech sector remains the team's favorite even though it's expensive relative to earnings. And, they expect financials to outperform due to deregulation.
"Our forecasts are built upon the most historically important drivers of corporate profits and stock prices," Golub wrote. "That said, many things can alter the market’s path over the near term."
Trump policy
The group of stocks that would benefit the most from a corporate-tax cut surged after the election but slid only until recently. This suggests investors were doubtful about President Donald Trump's plan.
"We expect that the proposed tax plan will be difficult to pass, or will have less of an impact than hoped for," Golub said.
"While we believe that the market would initially applaud such actions, we anticipate that the investment conversation would quickly shift toward higher potential deficits and wage inflation, both negatives for stocks."
New Fed leadership
President Trump said two weeks ago Friday that he would make an announcement on who will lead the Fed after Chair Janet Yellen's term ends in February. He is reportedly considering policy hawks including Kevin Warsh and John Taylor.
"We believe that there are two key issues surrounding Yellen’s replacement that could unsettle the market: (1) a change in the perceived independence of the Fed, and (2) an end to the period of uber-dovish policy."
Volatility
Stocks have historically rallied when the CBOE Volatility Index is very low.
"Market volatility has been extremely low throughout the recovery, with the VIX currently reading 9.7," Golub said. "This has led many pundits to characterize investors as complacent and the market vulnerable to a pullback. We disagree with these assertions."
See the rest of the story at Business Insider
No comments: