NEW YORK, NY - SEPTEMBER 18: Traders work on the floor of the New York Stock Exchange (NYSE) on September 18, 2015 in New York City. A day after the Federal Reserve decided not to raise interest rates, stocks fell on Friday with the Dow dropping over 290 points by the close. (Photo by Spencer Platt/Getty Images)Spencer Platt/Getty Images
Bank of America Merrill Lynch is the latest bank to throw its proverbial hat into the year-ahead outlook ring.
Savita Subramanian, head of U.S. equity strategy and U.S. quantitative strategy, is forecasting the S&P 500 will reach 2,200 in 2016. She also included a target of 3,500 by the year 2025. As of now, the index is hovering a little below 2,100.
For next year, Ms. Subramanian says to "stick with the S&P 500" despite valuations having less room to run and the long-in-the-tooth bull market in equities heading into its seventh year. "We expect modest gains for U.S. large cap stocks in 2016: the likelihood of a recession in the next 12 months is low in our view," the analyst adds. Furthermore, neither valuations nor the economic data look particularly worrisome compared to previous peaks in the market, according to BofAML.
Going beyond the next 12 months, however, things really look good.
Ms. Subramanian and her team point to a nearly 70-per-cent rise by 2025.
"Based on current valuations, a regression analysis suggests compounded annual returns of 8 per cent over the next 10 years with a 90 per cent confidence interval of 4-12 per cent. While this is below the average returns of 10 per cent over the last 50 years, asset allocation is a zero-sum game. Against a backdrop of slow growth and shrinking liquidity, 8 per cent is compelling in our view. With a 2-per-cent dividend yield, we think the S&P 500 will reach 3500 over the next 10 years, implying annual price returns of 6 per cent per year."
Other firms releasing 2016 forecasts include RBC Capital Markets with an S&P 500 target of 2,300, Goldman Sachs with a call for the index to end the year basically unchanged, and Barclays which agrees with Bank of America's 2,200 target for the next 12 months.