Our best guess for equity markets is…
Higher in 2017.
As most of our readers know, markets anticipate. That is they go up or down based partially on expectations. Last year after an unproductive 1st quarter markets began to improve. In our opinion, Mr. Market was anticipating better earnings later in the year. And, that is what the estimates appeared to have delivered: Earnings growth estimates for the 3rd and 4th quarters came in at 3.1% and 3.2% respectively.
Consensus estimates for next year expect earnings growth of 12%; Raymond James’ estimate is around the 8% earnings growth.
January’s Manufacturing Report by the Institute for Supply Management grew once again posting the index at 54.7, 1.5% better than November. The comments immediately below, from the ISM survey, are representative of the mood of some business leaders; they are not all-inclusive:
- “Ramping up for year-end by reducing inventory.” (Chemical Products)
- “Our business remains strong, and we see continued growth.” (Plastics & Rubber Products.
- “Business continues to be brisk with an uptick of RFQs. Customers are earmarking funds for capital equipment upgrades.” (Machinery)
- “Hiring still tight on available local labor. Business, by segments, still uneven. Some consumer markets very (seasonally) strong, but industrial markets lagging.” (Transportation Equipment)
- “Business conditions are good, demand is growing.” (Miscellaneous Manufacturing)
- “December 2016 is way ahead of December 2015.” (Fabricated Metal Products
Earnings growth estimates when combined with the dividend yield of the S&P 500 (8% + 2%) yield a potential increase in market value of approximately 10%. Based on the closing price of the S&P on December 30th, 2016 that suggests a year-end 2017 closing prices of around 2,460. At current P/E ratios of around 17 times this seems achievable. Higher is better.
Our portfolios strategies reflect overweighed exposure to Domestic Equities.
Carlos Dominguez, CFP® – Portfolio Manager
Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor recommendation. The information has been obtained from sources considered reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance may not be indicative of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock
Market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.