Well, count Credit Suisse among those who can no longer sit idly by and watch equities climb inexorably higher on increasingly ridiculous multiples and “hope” (because that’s all it is) that the Trump administration is going to come through on the growth-friendly parts of its agenda.
On Monday, the bank’s Andrew Garthwaite (who definitely doesn’t think Marine Le Pen can win the French presidency) and company are upping their index targets across the board, goddammit. To wit:
In this report, following the reaching of our mid-year S&P 500 target, we raise both our mid-year and year-end S&P targets to 2,400 and 2,500, respectively (from 2,350 and 2,300). We continue to see a clear-cut risk — as highlighted in our piece, Surprises for 2017, 20 January — that we get an overshoot to the upside in equities that then reverses later on; more realistically, this reversal is likely to be a very late-2017 or 2018 event. We leave our mid-year targets on the Euro Stoxx 50 and the Nikkei 225 in place at 3,500 and 20,500, respectively, but on the back of the change to our S&P 500 target, we also increase our year-end targets for the Euro Stoxx 50, the FTSE 100 and Nikkei 225 up to 3,700, 7,500 and 21,000, respectively (from 3,450, 7,000 and 19,800). We also revise our FTSE 100 mid-year target to 7,400 from 7,100.
So that basically brings CS in line with every single individual investor on the planet who, together, dumped $131 billion into global ETFs in the first two months of the year.
For those interested, below find some things CS thinks you maybe should worry about, along with some sh*t you definitely shouldn’t lose sleep over.
The tactical issues that don’t worry us: (i) lead indicators are peaking (but c71% of the time on a 3-month view the S&P can rise); (ii) some sentiment indicators are becoming excessive (e.g. bull-bear/insider selling, but our aggregate measure isn’t); and (iii) the market has typically risen c5% in the 6 months after the third Fed rate hike.
The tactical issues to focus on: (i) corporate net buying slowing and buybacks as a style underperforming (but FCF after dividends and buybacks is still positive); (ii) speculators are very long oil while the market has been moving against them, and the oil price has had a strong correlation over the past two years with risk assets (but our house view is $62pb by year-end and the correlation between equities and oil has started to fall); and (iii) cyclicals underperforming, which leads to the S&P 500 falling c73% of the time in the next 3 months (though it has not done so in the past month).
Two events that could make us turn negative: (i) if the unemployment rate falls 50-100bps below NAIRU and wage growth rises above 3%. This increasingly looks like a 2018 event; and (ii) if the 10-year UST yield rises to 3.0-3.5%. We think we are in the late stages of the bull market, so ultimately most of the rise in the next year would reverse into the next bear market.