S&P 500 Forecasts
Price Target (2017 YE): 2,400
EPS (2017): $128
EPS (2016): $120
VIX (Average): 16-18
Key Drivers
US business cycle entered new intra-cycle expansion
Improving growth, sentiment, liquidity, inflation data
Resilient economic growth with rising inflation
Real GDP growth 2.0% y/y; Core CPI 2.3% y/y
From disinflation to reflation
Inflation expectations moving higher
Improving fundamentals
Expect 7-8% EPS upside on stronger top line in 2017
New US administration mostly pro-growth
Could add up to ~$20 to S&P EPS over multiple years
Equities possess attractive cross-asset valuation
4.3% Equity (Div + Buyback) yld vs 2.3% Bond yld
Key Risks
Higher volatility likely and elevated equity tail risks
Resulting in periods of volatile selloffs (e.g., Jan ’16)
Stronger USD, pressuring profits and margins
2% Δ in USD TWI = ~ -1% Δ in S&P500 EPS
Rising bond yields, higher borrowing costs
100bp rise in yields = ~$1.30 hit to ’17 S&P500 EPS
High equity multiple at ~17x P/E
Earnings growth support needed
Geopolitical risks
Brexit, FR/GR elections, IT ref, Middle East
New US administration political uncertainty
Trade protectionism disrupting global economy