CHICAGO, ILLINOIS and TORONTO, ONTARIO--(Marketwired - Aug. 26, 2014) - After closing for the first time above the 2,000 mark, the S&P 500 is poised to hit 2,140 within the next year, according to a report today released by BMO Private Bank Chief Investment Officer Jack Ablin.
The S&P 500, or the Standard & Poor's 500, is a stock market index based on the market capitalizations of 500 large companies with common stock listed on the NYSE or NASDAQ.
"Over the next 12 months, we anticipate a 5-7 per cent gain for the S&P 500, fueled by modest earnings and revenue growth," said Mr. Ablin. "Our favourite sectors are financials and health care, because of their relatively cheap valuation when gauged against the other sector groups."
The S&P first reached 1,000 in February 1998. The market crossed the 1,000 mark four more times since then, two times on the upside, August of 2003 and August of 2009; and twice on the downside, July of 2002 and November of 2008.
Mr. Ablin noted in his report that since hitting a low in March 2009 in a month the economy lost more than 800,000 jobs, the S&P has grown nearly 200 per cent, for a 22 per cent annual compounded return.
"For investors that put their savings into the market in December of 1928, months before the 1929 market crash that ushered in the Great Depression, they would have still made a 7,828 per cent return or a 5.2 per cent annual compounded return."
Mr. Ablin noted that while Federal Reserve restraint represents a potential headwind, history has shown that equities can advance as rates rise, particularly in response to stronger economic growth and modest inflation.
"Equities are cheap compared to bonds. The S&P's earnings yield is more than two percentage points above the triple-B bond rate. Large caps are also cheap versus their smaller counterparts, like the Russell 2000."
According to the report, risks to the rally continuing are an extended economic growth slowdown abroad, both in China and the EU. A substantial rise in unanticipated inflation could also shift investors' attention away from equities toward real assets, like gold and other commodities.
Longer term, the trajectory of the S&P largely depends on the direction of the U.S. and global economy. "While we're optimistic, certain imbalances, like debt levels, household income growth and labor participation need to be addressed by both the public and private sectors," said Mr. Ablin.
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