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Summarizing Morgan Stanley's Entire "S&P At 3000 In 2020" Report In One Sentence
Do you believe in miracles? Morgan Stanley's Adam Parker does, having given up on his sane bearish case long ago, he now predicts S&P to 3,000 because "if we get EPS growth of 6% per year from 2015-2020, that would drive S&P500 earnings to near $170; a 17x multiple would translate into a peak level for the S&P500 near 3000 under this scenario." So, just some simple math, eh? But he does add, "of course, no one can predict unforeseen shocks to the economy," but they will never happen, right?
To back up this simple statement of mathematics, Parker produces 27 pages of fluff that in now way supports the actual thesis with long-term projections, simply shrugging away the fact that this would be the longest period of expansion (with no recession) in history.
Parker's Bottom line is a little less exuberant than the headline-makers would like you to believe...
Business cycles don't die of old age, they die of overheating. Debt dynamics, particularly in the US, paint the picture of a more prudent household sector and well-managed corporate sector, both of which remain far from the heights of leverage typically associated with risks to business cycle expansions. Moreover, volatility in the economy has trended lower over time, owing in part to technological advances that have helped companies remain nimble when sudden changes in aggregate demand occur, and in part to a rising share of companies that carry no inventory.
The current expansion is more than five years old, and with little evidence of global synchronicity, there are no signs as yet that the global economy is overheating. The current US expansion has already lasted longer than the average expansion in the post-WWII period, but the factors we monitor and have discussed here lead us to conclude that it isn't unreasonable to expect that this expansion could be the longest on record. In a scenario where the cycle does extend for several more years, earnings could grow modestly as well. The US Equity Strategy team notes that EPS growth of 6% per year from 2015-2020 would drive S&P500 earnings to near $170. A 17x multiple would translate into a peak level for the S&P500 near 3000 under this scenario.
Of course, no one can predict unforeseen shocks to the economy - be it fiscal or monetary policy missteps domestically, geopolitical events abroad, or even major natural disasters. But our title, “2020 Vision”, is our tongue-in-cheek way to desribe the idea that the current US expansion could prove to be the longest ever and perhaps last until 2020.
There are a number of ways the current expansion could get derailed. Europe and China are already slowing and near recession in some parts. Japan is highly dependent on the success of policy. US reforms on key issues like the budget, taxes and entitlements, and immigration seem a long way off and are likely to cause much angst in the coming years. And after a prolonged period of unprecedented monetary policy accommodation, we are on the cusp of removal of that accommodation - also in an unprecedented way. So by no means can we say that six or seven more years of expansion are an obvious outcome. But, all else being equal, the metrics we analyzed in this note are unlikely to be the root cause if this expansion were to be cut short.
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Wait, what, there are risks to this call?
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this guy - focused on a bonus
And what would you be able to buy with this S&P500 3000$? A one ounce bullion coin? If you're lucky.
more then one coin if you trade NUGT/JNUG
T here will be no growth. None. Only Inflation. You heard it first here.
My thoughts exactly.
Could happen, but that would make the collapse even worse that it's already going to be.
3,000? Try 10,000 you pussy.
The Zimbabwe stock market went up 30,000%; but it didn't do anyone any good who was trapped in Zimbabwe "dollars". Focus on purchasing power; make use of your own life experience; you know damn well a 2020 "dollar" isn't going to buy anything.
Parker doesn't have the balls to call 10,000.
I call 10,000! Wanna raise me there Parkey?
I'm so glad the Fed has divorced stock prices from underlying economic performance, or this might be ugly for the markets.
Well I guess he must be a math genius. 6% interest on interest means exponential growth also for earnings but do you think wages will grow also in that rate ?. Anyhow there can not be a large divergence between the real economic world and the financial world like now. ( I guess even Goldamn understands this). Another issue here is how real are the earnings :) Nobody knows thanks to fuzzy FASB accounting and please remind me how much the part of the S&P 500 earnings are from "financials" ?
You don't need wage growth -just extend debt and credit -lot's of people still have assets they can mortgage as collateral -their homes, IRAs, organs, children - you can pimp your teenage daughter as a sex slave -this will help pay for her college education-if she's good looking, there are lots of charitable people who will abuse her for some really good money.
Just more evidence to the contrary as this is the kind of prediction that only comes out during bubbles. After the market has tripled in 6 years, there is always that guy claiming a straight line to the next 50%.
They went to Janet's cocktail party over the weekend.
I hear Janet was a real hottie bfore electricity.
I don't see why they are only projecting 6% growth with how well Baby Boomers have funded their retirement accounts. At least 10% growth, sarc.
Yes, those last two rounds were just "natural cycles."
The ultimate bearish signal...when former bears turn bullish.
Another 30% devaluation sounds about right. That 3000 figure is easily within the Feds grasp. Hell, it needs 7-9 % a year just to make pensions viable.
what if the companies cannot INCREASE NON GAAP adjustmetns by 6% a year.What if they actually compact NOn GAAP adjustment and eps declines
What if buybacks decline (ie, technically if they keep this going the remaining 100,000 shares will be prices at 62 million each for IBM. At some point they do not have enough money to keep buying shares. at some point the entier market cap woudl have to be the buy back. That would be interesting.
What if the tax inversions are retroactively reversed--that would be a single huge hit to income and cash flow (retroactive means nobody grandfathered-unless the govt thinks it can claw back on a true retroactive.
What if bank mark to BS accounting was halted (it can't be)
actually they have to find a way to expand the use of all the above to maintain "earnings growth" . They have to carve out more non gaap earning. somehtign like payroll taxes as non recuring would help. Or utilities. Maybe even stick cost of goods sold into non recurring.
feh.
Does he have a PhD?
DavidC
He has a nailgun just incase he's wrong!
Yeah cause those PHD's are never wrong.
Does it really matters? It's banks that buying each others stocks and bonds occasionally fucking each other over etc etc!
I'm so gonne out of this shit circus! Lifes to short!
6% EPS growth's pretty fucking boring - since it's just a bullshit 'pulled it out of my ass' number anyway, why doesn't he use 60% - that would give a really exciting S&P target.
But hey, the S&P to the moon, right? DJIA to 30000!!!!11111
Really goes to show the REAL economy doesn't matter anymore to these "markets".
penny for a dolla ...... s+p 3000..... watch out for low flying pigs
the joker is in the parking lot outside the theater
Lets just call it 5,000, why not? We already went full retard long ago anyway.
That's the MS forecast for YE 2020 using the 6% earnings growth assumption and a 17x multiple.
So, expect no growth and 6% of outstanding stock buybacks per year?
Since when does simple extrapolation = value-added analysis?
In 1985 one of their acquisitions (Dean Witter) came out with a projection of Dow 5000 by the year 2000.
Everybody laughed then too.
Yeah, it made it all the way to 10K by 2000-I remember (swear to God) on CNBC they had party hats and a cake the day it hit 10K!
After that, the crash.
And we damn near got back there a decade after 2000.
"be it fiscal or monetary policy missteps domestically..."
These missteps have already occured. We just haven't paid for them yet.
you can shoot SP any number you want all this is circus show any way
this smart asses think they can escape first before any one notice