NEW YORK — The good news is that Wall Street experts think stock prices will rise more than 10 percent next year. The bad news is that they expected big gains in 2011 and got nearly zero instead.
It’s forecasting time on Wall Street, and once again the pros are trying to predict the unpredictable. History suggests their target price for stocks by the end of 2012 will prove too high or too low. They might even get the direction wrong – predicting a gain when there’s a loss.
In typical times, guessing where stocks will end up in a year is difficult.
Now, forecasting has become nearly impossible. Big unknowns hang over the market as rarely before. Will the euro break up? Will China slow too sharply? Will squabbling in Washington scuttle the economic recovery?
“Normally, you wonder, How will sales do? How are managements doing?” says Howard Silverblatt, the senior index analyst at Standard & Poor’s. “Now there are so many high-level issues that affect the market.”
Silverblatt’s firm says the S&P 500 index should rise to 1,400 by the end of 2012, up more than 10 percent from Friday’s close of 1,265. That figure is an average of expectations from investment strategists and economists. More bullish yet are stock analysts focused on individual companies. Add up their price targets for each stock in the index, and they see it rising to 1,457, up 15 percent.
There’s plenty of reason to think stocks will rise fast in the coming year. U.S. companies are generating record profits. Americans are spending more than expected. The job market finally appears to be healing, too.
The S&P 500 is trading at 12 times its expected earnings per share for 2012. It typically trades at 15 times, meaning stocks appear cheaper now.