Change In Character

 

The market could be experiencing a change in character that marked the good news is good news and bad news is good news market for the past several months.  The potential for a catalyst to rattle the markets was there and looks like the emerging market complex is set to deliver such a catalyst to the US equity markets.  It of course remains to be seen whether this is just a temporary blip in an ongoing march higher by the markets or whether it develops into something that proves more troubling, similar to what happened in 1998.  Unfortunately we don't have any certainty on this matter, but we suspect to will fall somewhere in between the best case and absolute worst case scenario.

 

The Fed continues its plan to  taper asset purchases by another $10 billion per month.  The committee expects to continue the taper process for the balance of the year bringing asset purchases to zero by the end of 2014. We suspect this liquidity drain out of the system will impact the economy as well as the stock market in the coming months.  2014 is setting up to be an interesting year.

 

 

 

 

 

 

2014 Predictions

As we begin a new year, it’s time for the various market predictions.  Analysts and markets strategists have made a number of projections for the S&P 500 for 2014.  Below is a summary of these projections and of recent historical trends in the data.

• Where will the market close in 2014? For 2014, industry analysts in aggregate see the index closing higher in 2014, while market strategists on average see the index closing lower by year-end.
• What is the projected EPS estimate for 2014? As of December 31, industry analysts in aggregate were projecting record-level EPS in 2014 of $119.80. However, they have overestimated the final EPS for the index on average over the past 15 years.
• Industry analysts ($119.80) and market strategists ($118.15) had similar EPS estimates for 2014 on December 31. This marks the smallest absolute spread between the EPS estimates in five years.
• Is the index overvalued? Based in the closing price and forward 12-month EPS estimate on December 31, the forward 12-month P/E for the index is 15.4. This P/E ratio is well above the 5-year and 10-year averages, but still below the 15-year average.
• In terms of earnings for the index, industry analysts project growth of 10.5% for 2014. All ten sectors are predicted to see earnings growth, led by the Consumer Discretionary, Materials and Telecom Services sectors.
• In terms of revenues for the index, industry analysts project growth of 4.0% for 2014. All ten sectors are predicted to see revenue growth, led by the Health Care, Consumer Discretionary, and Information Technology sectors.