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  • S&P500 Still Projected To Hit 2100 By End Of Year 13 comments
    Jul 6, 2014 12:41 PM | about stocks: SPY

    I had written an article last year predicting S&P500 end 2013 price of $1950 and end 2014 of $2100. I just updated by 2014 predictions using the same methodology (for details, click the link to see the methodology in my original article). The key factor is what the 10 year would be at in the end of 2014.

    End year 10-year Treasuries End year S&P500
    2.40% $2,404
    2.45% $2,337
    2.50% $2,273
    2.55% $2,212
    2.60% $2,155
    2.65% $2,101
    2.70% $2,049
    2.75% $2,000
    2.80% $1,953
    2.85% $1,908
    2.90% $1,866
    2.95% $1,825
    3.00% $1,786

    At the current ~2.65% for the 10-year, S&P500 should still be at ~$2100 by end of year. However, notice the sensitivity to the interest rate. I hope the rates remain steady to trending low.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: SPY
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Comments (13)
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  • Economic Analyst
    , contributor
    Comments (3564) | Send Message
     
    International Monetary Fund Managing Director Christine Lagarde signaled a cut in the institution’s global growth forecasts.

     

    The Federal Open Market Committee repeated on June 18 that it expects the rate to remain near zero for a “considerable time” after the purchases end work.

     

    http://bloom.bg/1myxRxi
    7 Jul 2014, 02:02 AM Reply Like
  • bbro
    , contributor
    Comments (11195) | Send Message
     
    Interesting...have you tracked the response of the S&P 500 to the Baa corporate yield?
    7 Jul 2014, 02:44 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Author’s reply » No I haven't. What are your thoughts on that?
    7 Jul 2014, 10:18 AM Reply Like
  • bbro
    , contributor
    Comments (11195) | Send Message
     
    I track the Baa corporate yield to stock market valuations because higher corporate yields tend to put pressure on equities and lower corporate yields tend to be supportive plus
    they(Baa's) do not have the flight to safety component that exists
    sometimes with treasuries...
    7 Jul 2014, 03:00 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Author’s reply » That's very interesting. What are they telling you now? I would love to learn that piece.
    7 Jul 2014, 03:05 PM Reply Like
  • bbro
    , contributor
    Comments (11195) | Send Message
     
    With the Baa yield around 4.85% it is very supportive of equity
    prices...if it should stay around this level equity prices could move higher and if the Baa yield moved higher modestly that too would support higher prices...a sharp rise would likely create
    a sharp selloff....another marking point could be when the
    Baa yield exceeds the S&P 500 earnings yield....
    7 Jul 2014, 03:41 PM Reply Like
  • mirko78
    , contributor
    Comments (10) | Send Message
     
    I write because I studied all the day, but I some problems
    for calculation , if we consider 28/03/2013
    I want calculate g,

     

    g = (1-payout ratio) * return on equity

     

    for 28 march 2013 payout ratio is 32,84 (0,3284)
    G = (1-0,3284) * roe

     

    roe q1 2013= 15,5 (0,155)

     

    g= 10 % why in your coloumn (implied growth rate) ,
    g is 4,7 % ?

     

    where I wrong ?

     

    thank you
    8 Jul 2014, 06:15 PM Reply Like
  • mirko78
    , contributor
    Comments (10) | Send Message
     
    I resolved, how can I delete an comment ? thank you
    9 Jul 2014, 04:17 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    How do you square your original model saying 10 yr at 3.5% gives us S&P 500 of ~ 2130 and your new up to date numbers showing 10 year at ~ 2.6% giving the same S&P 500 value? The usual case is Low 10 year = low growth. But you are adding and = higher stock prices huh?

     

    Also your assumptions assumed accelerating nominal GDP growth coinciding with QE taper. No math guy but this doesn't look like accelerating growth, it kinda looks like the opposite.
    GDP Data:
    2012 - 2.8%, 2013 - 1.9%, 2014 - 1.6% (latest estimate down from 2.5% which was down from 3%)

     

    I am betting you will be right on SPY but for a different reason. The amount of stock taken out of the system by buybacks is causing the P/E expansion. The buybacks are fed by the cheap money.
    11 Jul 2014, 01:12 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Author’s reply » Rock, in my earlier model I used raw operating earnings. In this model I used more conservative predicted reported earnings. If I used the same raw operating earning in the new model, S&P500 would be at around 2200 for the 2.65% base case. Can happen, as if people traded using finanial models they would look at operating earnigns and not reported crap.

     

    As for the QE taper, it's public now, so I don't need to guess any more when QE taper happens. It is happenning anyway.
    11 Jul 2014, 01:51 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    Macro, that is a good model. The only thing I would add to that is a "projected miss" for the SP500 earnings. The projected earnings miss is the value SP500 puts for a quarter the first time it appears vs the final value. For example for 2014Q1, it is 28.75 vs final value of 24.87. The average is about 18% miss for the past 15 years. Some years like 2008 and 2009 featured 50% misses, but some years like 2005 and 2006 actually saw small positive surprises. In any case since 2010, the average is about 20% miss.

     

    Can you send me the spreadsheet.
    12 Aug 2014, 11:26 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    20% return from here if 10 year stays at ~2.4%. That would be quite a run for the last 4 months. I am down with that but would rather see a nice 5% or more draw before that.
    23 Aug 2014, 01:08 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Author’s reply » We shall see. But it is only 7% run from here if 10-year stays at 2.4%.
    23 Aug 2014, 01:12 PM Reply Like
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