For 2018, the S&P 500 has witnessed an increase in value of 0.8% (to 2695.95 from 2673.61) to date. Where do industry analysts believe the price of the index will go from here?
Industry analysts in aggregate predict the S&P 500 will see a 17.1% increase in price over the next 12 months. This percentage is based on the difference between the bottom-up target price and the closing price for the index as of yesterday. The bottom-up target price is calculated by aggregating the median target price estimates (based on company-level estimates submitted by industry analysts) for all the companies in the index. On December 6, the bottom-up target price for the S&P 500 was 3157.49, which was 17.1% above the closing price of 2695.95.
How Accurate Have the Industry Analysts Been in Predicting the Final Value of the S&P 500?
Over the previous 15 years (2003 – 2017), the average difference between the bottom-up target price estimate at the beginning of the year (December 31) and the final price for the index for that same year has been 7.9%. In other words, industry analysts on average have overestimated the final price of the index by about 7.9% one year in advance during the previous 15 years. Analysts overestimated the final value (i.e. the final value finished below the estimate) in 11 of the 15 years and underestimated the final value (i.e. the final value finished above the estimate) in the other four years.
However, this 7.9% average includes one year (2008) in which there was a substantial difference between the bottom-up target price estimate at the start of the year and the closing price for the index for that same year (+92%). If the year 2008 were excluded, the average difference between the bottom-up target price estimate one year prior to the end of that year and the closing price of the index for that same year would be 1.9%.
If one applies the average overestimation of 7.9% to the current 2019 bottom-up target price estimate (assuming the estimate changes little between now and December 31), the expected closing value for 2019 would be 2908.50. If one applies the average overestimation of 1.9% (excluding 2008) to the current 2019 bottom-up target price estimate, the expected closing value for 2019 would be 3098.07.
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.