We have been cautious for most of the year, but with the enormous amount of volatility combined with the market sell off during the 4th quarter, we want to clarify our targets for the S&P 500. We already had lower targets on the S&P than other firms, with an expectation of low to moderate single digit returns for 2018. We have stated that the S&P should have a slightly lower multiple (15 -16 times earnings, instead of the 17-18 times earnings over the past couple of years) based on the theory of a higher interest rate environment. So to make it clear, here are ranges that the S&P should trade in for 2019 and 2020 based on projected earnings:
2019 2670 - 2848
2020 2900 – 3100
If we take the low end for each year, we are looking at roughly 6% higher from today’s market action in 2019 and about 16% higher for 2020. In addition we would suggest bond yields will stabilize and if and when the 10yr yield goes back above 3%, it will be a good entry point to get back into the bond market.
Market psychology usually overshoots in both directions and while there is no easy way to determine a market high or bottom. Baron Rothschild has said, "the time to buy is when there's blood in the streets." This just might prove to be true when we look back in a year or two from now.
