Wall Street Portfolio Manager Won’t Apologize for Bullish S&P 500 Forecast
The S&P 500 has advanced approximately 4% year-to-date and has been in the doldrums in recent months after trading at a record-setting pace in January. If you ask Steve Chiavarone, a portfolio manager at Federated Investors, corporate America will fuel a rally that will catapult the index to new levels by year-end.
Chiavarone on CNBC attached a bullish price target of 3,100 on the S&P, which reflects about an 11% increase versus today’s price of 2,779 and a 15% rise for all of 2018. The average S&P 500 annual return is 10%. While other analysts may be thinking bullish, Chiavarone is one of the few to go out on a limb with a forecast like this one.
“We think right now that there’s a wall of worry. That’s evident because everyone feels the need to apologize for being bullish and we just don’t,” Chiavarone told CNBC.
Chiavarone points to corporate America as the catalyst, as evidenced by fundamentals that keep getting stronger. Profits were growing by 25% in the first quarter and Federated’s Chiavarone predicts that the earnings picture is rosier in Q2. He is predicting earnings growth of more than 20% for the coming quarters in 2018 and has attached an estimate of “$155 per share for S&P earnings,” according to CNBC.
Wall of Worry
But what about the “wall of worry” that Chiavarone alluded to? The Federal Reserve is gathering this week to decide the fate of short-term interest rates, the consensus for which is overwhelmingly in favor of an increase. Chiavarone is betting that inflation will remain low. But anecdotal evidence is suggesting that rising consumer prices could be right around the corner.
Take TreeHouse Foods. Its bottom line has suffered in recent quarters amid rising commodity costs that it hasn’t passed along to its customers in a fiercely competitive market environment. The tide could be about to turn, however, amid a CEO who said on the last earnings call: “Our margins are our margins, and so passing commodities on I think is a reasonable conversation.” Coupled with flat wages, an increase in inflation could intercept any stock market rally that would otherwise be brewing.
And that’s not to mention the geopolitical uncertainty. The U.S. is seemingly on the brink of what could morph into a trade war with some of its strongest allies, while President Trump crosses paths with one of the most mysterious, unpredictable and dangerous leaders of our time. If the S&P 500 can pull off a record run under these conditions, investors who follow Chiavarone’s lead would unapologetically be raking in returns.
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