The S&P 500, which passed 1,500 for the first time in seven years Thursday, could reach 1,650 this year, according to Tony Dwyer, equity market strategist for FTN Midwest Securities.
“I think we’re going to have double-digit returns from here,” Dwyer said on "Morning Call." “I think it’s important to understand where we are in the cycle. There’s clearly going to be a slow down in earnings, but… at this point in the cycle, it’s valuation expansion that drives upside for equities. We believe that you started the valuation expansion with a peak in rates last July. We think you’re going to see more multiple expansion.”
But Douglas Cliggott, chief investment officer for Dover Management, said he expects earnings to fall below current levels by the end of the year.
“Over time, it really is earnings that drives stocks,” Cliggott said. “Earnings estimates have come up quite a bit over the last five weeks. That’s good news. I think the more sobering news is that if we look at a longer period of earnings, earnings per share in the current quarter are at about the same level as the prior three quarters. We’ve had four quarters of relatively flat earnings per share from S&P 500 companies. My guess is for the market to move higher, earnings are going to have to start climbing soon.”
He said the falling dollar and higher gasoline prices would harm equity prices if the combination drove inflation higher.
“If inflation starts going higher again, then we’ll get downward pressure on P/E multiples rather than multiple expansion,” Cliggott said.