Thursday, November 29, 2012

Crystal Ball Gazing ... 2013 Stock Market Returns ....Looks Good

When it comes to investing, I'm in it for the long haul. Thus, predictions about any specific market gains or losses to come in the next months, quarters or even several years should always be viewed with a healthy dose of skepticism.

So let's remember that as we peer into the Goldman Sachs crystal ball and learn what they are projecting for stock market returns in 2013.

Goldman's five strategies for 2013 and S&P 500 targets says the following:

"Goldman Sachs rolled out its crystal ball on Thursday, laying out its stock market targets, investment ideas and top market themes for 2013.
Among their big predictions, Goldman is targeting a 12-month target of 1,575 for the Standard & Poor’s 500 index, which they say implies a 12% potential return on stocks – corporate fundamentals will support continued profit-cycle expansion.

Revenues for the S&P are expected to rise by more than 4% in 2013 and 2014, with margins hovering around the current 8.8% to 9%, earnings climbing by more than 6% and the price/earning multiple getting a modest bump — from 13.2 times to 13.8 times by the end of 2013.

And that pesky “turbulent political environment that curtailed corporate risk-taking in 2012,” is, whew, going away, says Goldman. The fiscal cliff will be avoided, but taxes will go up and federal spending is coming down.

And the U.S. economy will gain strength as the new year progresses, says Goldman, growing 1.9% in 2013 and 2.9% in 2014.

Other targets from Goldman: S&P 500 at 1,450 in three months and 1,500 in six months.

They also lay out five growth-capturing strategies for the new year.

1) Stocks will outperform treasuries

2) Equities will beat credit returns, though not on a risk-adjusted basis

3) Cyclical sectors will beat defensive sectors — materials, industrials, information technology over consumer staples, telecom and healthcare

4) Double Sharpe Ratio stocks offer high risk-adjusted earnings growth and prospective returns. Here’s an explainer for the Sharpe Ratio explanation and the Double Sharpe Ratio, which includes estimation risk. Rocket science, for sure. {NOTE: Feel free to ignore this highly technical and mathematically based method of attempting to weigh the risk versus reward characteristics of alternative investment choices.}

5) Stocks with high sales exposure to Brazil, Russia, India and China will beat domestic-facing firms."

Summing Up

As does Goldman, I see a slow but steady pace of economic growth for 2013 and beyond.

Sales growth of ~4% should translate into a much bigger earnings increase and an improved price/earnings market multiple as well. That's how they get to a 12% market gain for 2013. Makes sense to me.

As interest rates and inflation are expected to stay low and unemployment will remain high, it seems like more of the same is what's in store.

While that's not necessarily great news for the economy, it's not bad news for investors. The theme is that we'll just keep getting our act together and look to better days ahead in a few more years.

Meanwhile, we'll anticipate no negative shocks, although surprises by definition are not foreseen.

Thus, while there's clearly risk ahead, as there always is, there is also the opportunity for substantial rewards for patient stock investors.

I like our chances over the next year or so, and over the next several years, I like them even more.

Thanks. Bob.

No comments:

Post a Comment