Market Insider

Where strategists see stocks ending the year

Stocks that have room to run

By the numbers, the U.S. stock market appears to be on solid footing.

Stocks have surged since U.S. President-elect Donald Trump's surprise victory, on bets that his promised infrastructure spending and tax cuts will boost growth. Major indexes and sub-indexes have jumped to all-time or multi-year highs, indicating to many strategists that stocks should only move higher.

The average year-end target on the S&P 500 is now 2,209, according to CNBC's survey of 15 market strategists this week, which includes two firms that gave only 12-month targets. The median year-end target is 2,225, with earnings per share of $119.

"There's still time to get into cyclicals" — stocks that generally perform better as economic growth improves — "there's still time to look at equities as interesting ahead of next year," said Sameer Samana, senior global strategist at Wells Fargo Investment Institute, which expects the S&P 500 to end this year within a range of 2,190 and 2,290.

Other strategists have raised their S&P forecasts after the election, and on Tuesday, Bank of America Merrill Lynch became the latest to do so by increasing its year-end estimate to 2,100 from 2,000.

The set a record close of 2,204.72 Wednesday, while the Dow Jones industrial average posted a record close of 19,083.18. The Nasdaq composite set a record close earlier in the week of 5,386.35. All three indexes set fresh all-time, intraday highs Friday, as U.S. markets reopened after Thanksgiving.

The S&P 500 is up more than 3 percent since the election, with cyclical financial and industrial stock sectors the best performers. Industrials reached all-time highs this week, while financials hit highs going back to 2008.

That contrasts with earlier in the year, when sectors such as utilities, telecoms and consumer staples, performed strongly.

"There is a broad breadth to this move," said Ryan Detrick, senior market strategist at LPL Financial. "New highs on four to five indexes. It's not just the one sector is leading ... When you consider small caps, the Russell, that's really telling you how significant this buying pressure has been."

The index of small-cap stocks closed at an all-time high Wednesday, for its first eight-day streak of record closes since September 1997, Detrick said. The index was trading a touch higher Friday.

To be sure, over-enthusiasm in the market in the near-term could temper gains in the longer-term. Wells Fargo Investment Institute's 2017 year-end target range is the same as this year.

"The first half of next year will be a lot better than the second half of next year," Samana said. The "second half of next year (is when) inflation starts to increase ... If you saw the 10-year get above 3 percent and stocks rallying at the same time, I think you're at a situation where stocks are" peaking.

In a Wednesday note, Peter Boockvar, chief market analyst at The Lindsey Group, cited Investors Intelligence data that said market bulls rose above the "danger zone" level of 55 to 55.9 percent.

"Extreme sentiment doesn't stop rallies in their tracks, but it should alert everyone that in the very short term, this one is due for a breather," Boockvar said. "This also comes coincident with extreme overbought conditions."

Forty-eight percent of the S&P 500 stocks are overbought, according a Friday morning note from Bespoke Investment Group, while 18.8 percent are oversold.

BTIG Chief Technical Strategist Katie Stockton said she sees no intraday resistance for the December S&P 500 futures, and she expects the S&P 500 to reach 2,285 by year-end, before rallying to 2,400 in the first quarter of next year.

As for the Dow, some like Detrick see the index rising to 20,000 as early as the first quarter of next year.

"We think it's going to come down to the economy," he said. "As long as the overall economic picture continues to improve, this seven-year bull market can make it into year eight."