Friday, November 6, 2015

Market outlook: 6 November 2015

The Dow Jones Industrial Average has risen 174% from its 2009 low and the S&P 500 is up 210%. Both are within 2.5% of a record, nearing levels where they topped out in May, June and July.

Some money managers and analysts say stocks have risen so much they may not keep pace with corporate earnings, which are looking unsteady. The prospect of a Federal Reserve rate increase, considered likely after Friday’s strong report on October wages and job creation, makes the stock outlook even murkier.

The Dow Jones Industrial Average has surged 14% since its Aug. 25 low. The S&P 500 now trades at 23 times its companies’ net profits for the past 12 months, far above the 15.5 historical average and above the level of 20 hit in September, according to Birinyi Associates.

David Kostin, chief U.S. stock strategist at Goldman Sachs Group Inc., forecasts that the S&P 500 will average a total annual return of 5% for the next 10 years, including 2% from dividends and 3% from price gains.

He forecasts that the S&P will fall about 4% between now and year-end, not including dividends, leaving the index down about 2.9% for 2015. He projects a 5% index gain in 2016, with dividends adding 2% more.

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