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At the end of third quarter, the value of the S&P 500 index closed at 1920.03, which was 6.9% below the value at the start of the quarter (2063.11). This marked the largest decrease in the price of the S&P 500 during a quarter since Q3 2011 (-14.3%). Given the decline in price of the index during Q3 and the concerns in the market about slower global economic growth, where do analysts believe the price of index will go from here?

Industry analysts in aggregate predict the S&P 500 will see a 20.7% increase in price over the near term. This percentage is based on the difference between the bottom-up target price and the closing price for the index at the end of September. Aggregating the mean target price estimates (based on company-level estimates submitted by industry analysts) for all 500 companies in the index, the bottom-up target price for the S&P 500 is 2317.68, which is 20.7% above the closing price of 1920.03.

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Market strategists predict the S&P 500 will see a 13.6% increase in price over the near term. 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 September. Taking the average of the four index-level target price estimates submitted to FactSet by market strategists, the top-down mean target price for the S&P 500 is 2180.50, which is 13.6% above the closing price of 1920.03.

Who will be correct?

On average from October 2013 through September 2014, both industry analysts and market strategists underestimated the forward 12-month value of the S&P 500. Over this period, industry analysts were more accurate on average in their predictions than market strategists. Comparing a one-year lagged bottom-up target price estimate (based on company-level estimates submitted by industry analysts) to the closing month-end value of the index over the past 12 months, the bottom-up target price estimate was 0.2% below the closing value of the index on average during the past year. Comparing a one-year lagged top-down mean target price estimate (based on index-level estimates submitted by market strategists) to the closing month-end value of the index over the past 12 months, the top-down mean target price estimate was 6.0% below the closing value of the index on average during the past year.

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However, using the target price estimates from exactly one year ago (September 30, 2014), both industry analysts and market strategists overestimated the actual value of the index on September 30, 2015. Based on the target price estimates on this date, market strategists were more accurate in their predictions than industry analysts. At the end of September 2014, the bottom-up target price (based on company-level estimates submitted by industry analysts) was 2179.01, while the top-down mean target price (based on index-level estimates submitted by market strategists) was 2056.50. Compared to the closing price of the S&P 500 at the end of Q3 2015 of 1920.03, industry analysts overestimated the price of the index by 13.5% one year ago, while market strategists overestimated the price of the index by 7.1% one year ago.

FactSet Targets and Ratings Quarterly Report

Download the full edition of this quarter's edition of FactSet's Targets & Ratings Quarterly. Visitwww.factset.com/targetsratings to launch the latest report.

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Senior Earnings Analyst
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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