Morgan Stanley Raises S&P 500 Forecast

By Prachi Makkar,
Money and Investing Writer


While many other analysts are not optimistic about the current status of the markets, Morgan Stanley (NYSE: MS) recently raised its 12 month S&P 500 Forecasts.

The S&P 500 has continued to defy the odds and closed at 2,179 on Friday, September 2, up 227 percent from its March 2009 low.

Morgan Stanley chose to increase their forecasts because it is a great period for US equities, US stocks show high liquidity, and the US EPS growth is better than others.

The firm increased both their 12 month base and bull case scenario targets by 100 points.

The new targets are base case increase from 2,200 to 2,300, bull case increase from 2,400 to 2,500, and bear increase from 1,600 to 1,800. It also forecast the S&P 500 at 3,000 by 2020.

The increased price target implies a gain of 5.6 percent from Friday’s close. The new forecasts place Morgan Stanley among the most bullish firms on Wall Street.

It is currently a positive period for equities as they appear attractively priced. Bond yields appear risky and are extremely low, which investors tend to turn away from. In comparison to bonds, equities and specifically US equities are the best place for investors to be right now.

Liquidity is a major concern for any investor but, there is a beacon of hope in the liquidity of US stocks. The US has about 70 percent of global equities that trade more than or equal to $100 million each day.

With a very small amount of other investment options, the US equity market is the best alternative in today’s situation. Morgan Stanley’s US Equity Strategist, Adam Parker, in a note to clients, said that the firm thinks the US market will go higher. They also said that investors are underexposed to equities. The note also discussed why they increased their target forecasts.

Even in a base case scenario for the market, low growth is the economic forecast.

The US is one of the only major regions with a potentially positive earnings per share (EPS) growth. They are expected to grow with most US consumer metrics appearing directionally positive.

Housing, jobs, confidence, delinquencies, obligations, personal spending, etc. are showing a positive direction with corporate excess seeming to be under control.

It may be showing low growth but, that is more than what can be said for other major regions. Morgan Stanley used the American EPS growth to justify their increased forecasts.

Typically, when the real US treasury yield is so low, price to earnings ratios are lower. In the past, when real yields were extreme, near 0 as we are today, this was associated with lower price to earnings multiples.

That’s because they were seen as riskier regimes and the people relied on policymakers and their efficacy. Others are not as optimistic as Morgan Stanley.

Strategists at Societe Generale issued a short list of events that may have a major effect on global financial markets.

Everything from Brexit to policy uncertainty to China, can disrupt the markets and have a lasting impact.

The French bank predicts the US to grow 2.2 percent in 2017 but, believes that the US could see a downturn in 2018.

A version of this article appeared in the Tuesday, September 13th print edition.

Contact Prachi at

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s