According to an analysis by Bloomberg, the first week of 2018 has been the best week for stocks in more than a year. There was good news all around for all the three major indices in the first week of the New Year.
The S&P 500 Index rose past the 2,700 mark. The Dow Jones Industrial Average shot up past the 25,000 mark. And of the 100 companies listed on the Nasdaq 100, 98 went up.
Federated Investors’ chief equity strategist Phil Orlando was more prosaic. He said that just because the first week of the year started so well, it didn’t mean that the indices would just continue to go up. All it did was provide a base that is strong enough to support stocks. He however did give more upbeat forecasts for the fourth quarter earnings. He stated that growth has been great in the last nine months. And a strong fourth quarter result is also expected from most companies.
The usual trend since 2011 has been that the S&P 500 has retreated towards the end of the year and the first week of January. Some analysts have speculated that this could be because federal policies expire on December 31 of every year.
However, this time, the S&P 500 first dropped by 0.4% in the last week of the year, fueling expectations that this too would be a normal retreat for the index. However, four days before the 2017 ended, the S&P 500 suddenly changed direction and shot up by 2.6%. The index went up in every single one of the four sessions. This has happened only twice before in the last 27 years. The last two times this happened – first in 2006 and then in 2010 – the S&P 500 gained a minimum of 12% that year.
The reasons for such a euphoric beginning to 2018? Wall Street analysts have been increasing their earnings forecasts for most companies. In fact, a measure that tracks the frequency of revisions of earnings by analysts showed that the number of upward revisions of earnings last week were the highest since 2011. Thanks to all these positive revisions, the S&P 500 shot to the highest it has been since 1999.
In fact, Keith Parker from UBS is one of the many analysts who has raised his forecast for the S&P 500’s performance in 2018. According to him, the index will close the year at 3,150 points. The index’s earnings per share is also expected to go up from $141 to $157, says Parker. His reasons for upping his forecast are the new tax law which is going to positively impact earnings all around as well as the stock buy backs that will take place this year.
The 17 analysts that Bloomberg has been tracking show an average year-end estimated forecast for the S&P 500 of about 2,886 points, which is a 5% jump from the close of market on Friday, December 29, 2017. The average earnings per share for companies on the S&P 500 will be around $148.3 this year, vis-à-vis last year’s earnings per share of $128.6. Last year at this time, the S&P 500 has been forecast to grow at 14% for the year. This year, the consensus forecast is for about a 15% growth. This is the highest the forecast has been since 2010.
The S&P Index had a great year last year, the best it’s seen since 2013. The index hasn’t seen a drop of more than 5% in the last 16 months either. And this year is slated to be as good, if not better.