By Michael Ide
Macro strategists also seem more pessimistic than industry experts when comparing S&P 500 price targets.
Halfway through 2014, analysts can pat themselves on the back for being optimistic on energy and health care, but the best performing sector in the S&P 500 (INDEXSP:.INX) - utilities - has had the best performance so far this year. Analysts have stuck to their original positions and still say the sector is unexciting, giving it the largest number of Hold ratings.
"On December 31, the Utilities sector had the lowest percentage of Buy ratings of all ten sectors in the S&P 500 (INDEXSP:.INX). Since that date, the Utilities sector has recorded the highest increase in price of all ten sectors at 16.4% (to 224.93 from 193.21)," writes FactSet senior earnings analyst John Butters.
Analysts most optimistic on energy and health care
Energy had the highest percentage of Buy ratings followed by health care, 59% and 56%, respectively, and they were the second and third best performing sectors for the first half of the year. Now much has changed, with energy and health care switching positions for the second half of the year (56% and 58% Buy ratings) and the utilities sector has ticked up from 34% to 36% Buy ratings, still leaving it ranked dead last.
While not many analysts are excited about owning utilities, it's because they don't expect too much movement one way or the other. Utilities had the highest percentage of Hold ratings by a fair margin at 57%. Analysts were most pessimistic about telecoms, giving companies in that sector the highest percentage of Sell rating, 13% up from an average of 11% over the last year. Industrials had the lowest percentage of Sell ratings at just 3%.
Macro strategists more pessimistic than industry experts
The bottom-up 12 month S&P 500 price target (simply adding up consensus, market cap weighted price targets for all the companies on the index) rose 3.5% over the past quarter, from 2026 to 2097, while the actual index went up 4.7%, closing the gap a bit. Last year's bottom-up price target was 1769, 9.8% below the current 1960, and this underestimation has continued despite the consistently bullish sentiment.
The top-down S&P 500 price target fell for the first time so far this year, now projecting a 0.8% drop by the end of this year, showing a clear contradiction between market strategists (who may be putting extra emphasis on macro factors) and industry experts.