At Fundstrat, Stock Forecasts Range From Bullish to Very Bullish
The relentless rally of U.S. stocks to record has forecasters within the same firm making different predictions for the market.
(Bloomberg) -- The relentless rally of U.S. stocks to a record has forecasters within the same firm making different predictions for the market.
At Fundstrat Global Advisors LLC, Tom Lee, the head of strategy, sees the S&P 500 ending the year at 3,450, or just about 2% higher than current levels. Meanwhile, Brian Rauscher, the company’s global portfolio strategist, is more optimistic. He sees a gain of nearly 7%, all the way to 3,620.
Wall Street firms sometimes house strategists with contrasting opinions on the market’s direction -- a phenomenon owing to differing methodologies used in forecasting. Just last November, UBS Group AG’s Francois Trahan gave a bleak outlook while Keith Parker predicted monetary support would help boost equities. Fundstrat’s duo have reached different conclusions because the profit assumptions on which they base their calls vary widely.
In a note sent to clients Wednesday, Rauscher said he derived his prediction from a 2021 profit estimate of $197 a share and a flat price-earnings ratio from current levels. Lee’s forecast, published in December, was based on a 2020 earnings estimate of $178 a share and a small contraction expected in multiples.
“We firmly believe that it should not be confusing as long as everyone is aware we come at things independently and where we may differ,” Rauscher said in an interview. “At the moment, we are looking for higher, so the fact that levels are slightly different doesn’t change the larger message that we are all constructive on the market for the coming year. If/when we all disagree on up or down, it might get a bit more challenging.”
This is a difficult market to handicap. Many underestimated the equity rally last year after focusing on weak corporate earnings while overlooking the boost from Federal Reserve monetary stimulus. Now, six weeks into 2020, the S&P 500 has already exceeded the average target of 3,355 that strategists in a Bloomberg survey have for the full year.
Stocks have advanced this year, defying growth risks posed by the spread of coronavirus in China and looming uncertainty over U.S. presidential elections. At 19 times forecast earnings, the S&P 500 has traded at the highest multiple in almost two decades.
Is it time to sell? Both Lee and Rauscher at Fundstrat say no. Still, their different forecasts for the benchmark measure could be confusing, according to Robert Pavlik, the chief investment strategist at SlateStone Wealth.
“Having two differing views doesn’t help,” Pavlik said by phone. “Just at about every single firm, nobody is going to have the exact same opinion. It’s truly just the consensus that the firm decides to go with.”
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, ;Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth
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