There’s a new bull at the top of the Wall Street strategist charts.
Stifel Nicolaus & Co.’s Barry B. Bannister just increased his year-end forecast for the Standard & Poor’s 500 Index to 2,300, giving him the highest projection among 19 strategists tracked by Bloomberg. Previously he was tied for the lowest at 1,850. Bannister’s new estimate implies a 17 percent rally by New Year’s Eve to cap a 24 percent gain for the year.
What could cause such an extreme change of heart? To explain his thinking Bannister included an image of Viktor Vasnetsov’s 1887 painting “Four Horsemen of Apocalypse” (which sort of looks like album-cover art for one of those 1970s prog-rock bands that played double-neck guitars, but anyway.)
In Bannister’s view, the market is handling the Four Horsemen much better than he expected when he predicted the S&P 500 would tread water in 2014 and end the year little changed at 1,850. The horsemen, by the way, are the Federal Reserve (conquest), war (war), economic disparity/recession (famine) and bear markets (death).
The absence of recession triggers such as an over-heating economy and inverted yield curves should lengthen the current growth cycle in Bannister’s view. He wrote that the strongest and least risky returns in stocks happen in the first 65 percent of the economic cycle, and believes the market has already seen those with the S&P 500’s 191 percent gain since March 2009.
“But as an offset the arrival of bullish stragglers often pushes stocks higher, albeit with greater volatility,” Bannister wrote in a note dated yesterday.
Also, foreign investors may increase purchases of U.S. stocks because of doubts about their own economies and central-bank policies, according to the report.
Other strategiests are predicting weaker returns. Jonathan Glionna of Barclays Plc said overseas markets are generating too little demand for the S&P 500 to end the year any higher than current levels. Gains approaching 25 percent annually will weaken to 3 percent over the next decade as profit expansion reverts to its historic rate since 1929, said Doug Ramsey, the chief investment officer at Leuthold Group Llc.
Bannister breaks secular bull markets down into three distinct periods based on what type of investors are buying: intrepid, mainstream and straggler.
Three previous bull markets that were more than six years long each “coalesced at this exact point before moving higher,” which means this summer’s sideways market appears to be following the playbook, according to Bannister’s report. The current bull will turn 6 next March.
Those four horsemen just can’t keep up with this raging bull.