As markets hit new highs at the close on Monday, the timing of providing this mid-year outlook seemed appropriate. Many have raised questions about continuing to own stocks when returns this year have already reached the high end of most forecasts. LPL addresses this concern and provides other solid factors pointing towards the possibility of continued growth. I’ve outlined some of their main points below this link (LPL Midyear Outlook) is to an executive summary of the LPL Midyear Outlook 2017.
• Cyclical sectors and smaller cap stocks are expected to fare better than the S&P 500 in the 2nd half.
• Dips may provide buying opportunities.
• Fiscal policy is a wildcard that could potentially push stocks ahead of our forecast.
• Earnings estimates have stayed resilient. Estimates have held firm over the past month and still reflect near 10% earnings growth over the next 12 months.
• LPL expects earnings gains to support stocks in the second half of the year. Policy has the potential to drive additional earnings gains in 2018 that may begin to be priced in during late 2017, offering upside potential to our forecast.
In summary, LPL expects “6-9% returns for the S&P 500 in 2017, driven by: 1) a pickup in economic growth, 2) mid-to-high single digit earnings gains, 3) a stable price-to-earnings ratio (PE) of 19-20, and 4) prospects for a fiscal policy boost to earnings in 2018. While accelerating earnings growth may provide further support for stocks, challenges implementing the Trump administration’s agenda and additional Fed rate hikes could lead to periodic bouts of stock market volatility.
Hope this helps! Please send your questions or comments!