2017 Forecast: Looking for 20% from SP 500 in Calendar 2017

Here was the 2016 forecast, calling for 10% and while it looked pretty remote the first 2 months of 2016, the forecast paid off.

Here was the 2015 forecast, made in December, ’14 as the Energy sector was just starting to come apart. It too was pretty accurate.

The 2017 forecast is for 20%, and it is primarily earnings based.

Here is the last 5 years SP 500 earnings estimate and y/y actual growth:

  • 2016: $118.18, y/y growth of 1%
  • 2015: $117.46, y/y growth of -1%
  • 2014: $118.78 y/y growth of 8.5%
  • 2013: $109.68 y/y growth of 6%
  • 2012: $103.80 y/y growth of 6%

 

The bullishness for 2017, is partly due to the Republican Congress and President, and the bullish fiscal policies being discussed, but just watching the numbers in 2016, the SP 500 earnings estimate of $132.76 and growth of 12% was in the works well before the Trump Presidency and the surprise Republican sweep on November 8th, 2016.

In this article from May 21, ’16 this blog raised the specter of much faster earnings growth this coming year and then again this article in July ’16 said the same thing.

The point is that 2017 was looking for double-digit earnings growth even before the President-elect Trump stimulus we wrote about here was a twinkle in the Beltway’s eye, part of which is simply a catch-up from two consecutive years of flat SP 500 earnings growth.

In a CNBC interview, Barry Diller called the Trump Presidency ” a grand experiment”, but President-elect Trump may be the first US President that is not really Republican or Democrat, but rather the first “USA CEO”.

Call it what you will, but this may be the most pro-business, pro-growth, pro-capitalism Presidency since Ronald Reagan, and people probably forget that while President Reagan was very pro-economic-growth, he also spent half his time and energy worrying about how to permanently bankrupt the Soviet Union, and break the grip of Communism in countries around the world.

Mr. Trump is going to be tested. It felt like China was starting to do that this week, not with the drone abduction, but about the price-fixing around Ford and GM (long both for clients).

Although I voted for President-elect Trump in the Illinois primary, I couldn’t vote for President Trump (or Hillary) November 8th, because of his trade policies. His comments – and that is all we can judge a candidate by – seemed to lack understanding of the fact that if the United States dismantles NAFTA and weakens Mexico economically, then the US will have a far bigger problem with illegal immigration, than if we continue to send low-end jobs south of the border. Also, the President-elect’s tough talk on China seemed to miss the fact that for 20 or 30 years, US companies have been racing to invest and build manufacturing facilities in China, much like US oil companies did with crude oil production facilities in the 1960’s, and we know how that turned out in the 70’s.

That is the one hitch to the ’17 forecast: President-elect Trump won’t back down and re-think the tough trade rhetoric he has espoused, and that should make us a little nervous.

Dan Clifton of Strategas Partners noted in his CFA Society of Chicago presentation, that tax reform could cure a lot of the seeming trade issues.

From a tax and regulation standpoint, 2017 should be a great year. I hope that isn’t given back with erratic trade policies.

Thanks for reading.

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