For 2014, industry analysts and market strategists having differing views on where the S&P 500 will finish relative to the 2013 closing value of 1848.36.
Industry analysts in aggregate predict the S&P 500 will see a 4.8% increase in price over the next twelve months. This percentage is based on the difference between the bottom-up target price and the closing price for the index at the end of December. Aggregating the mean target price estimates (based on company-level estimates submitted by industry analysts) for all 500 companies in the index, the bottomup target price for the S&P 500 is 1937.91, which is 4.8% above the closing price of 1848.36. It is interesting to note that this is the lowest percentage price increase predicted by the industry analysts for a year in the past five years (2008 – 2013).
Market strategists, on the other hand, predict the S&P 500 will see a 2.3% decrease in price over the next twelve months. This percentage is based on the difference between the top down mean target price and the closing price for the index at the end of December. Taking the average of the eight indexlevel target price estimates submitted to FactSet by market strategists, the top-down mean target price for the S&P 500 is 1806.25, which is 2.3% below the closing price of 1848.36.
It is not unusual to a wide spread between the industry analysts and the market strategists in terms of target prices. Over the past three years (on a month-end basis), the bottom-up target price has been 6.2% above the top-down target price. As of today for 2014, the bottom-up target price is 7.2% above the top-down mean target price.
Who will be correct? It is interesting to note that over the past three years (on a monthly basis), the industry analysts have overestimated the closing price of the index 12 months later by 2.6%, while the market strategists have underestimated the closing price of the index 12 months later by 2.6%.
In terms of ratings by industry analysts on S&P 500 companies at the end of the quarter, 50% were Buy ratings, 45% were Hold ratings, and 5% were Sell ratings. Since September 30, the number of Buy ratings has fallen by 1.5%, the number of Hold ratings has dropped by 5.5%, and the number of Sell ratings has increased by 2.7%.