by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James
Highlights:
2015 Market Outlook
• We see the North American (NA) and global economy gradually improving in 2015, with the US economy leading the way. The US economy is forecasted to grow at 3% in 2015, up from 2.3% in 2014.
• The Canadian economy stands to benefit from an accelerating US economy. We see the potential for higher exports on the back of a stronger US economy and a weaker Canadian dollar. However, the Canadian economy should trail the US given weak commodity prices and high consumer debt.
• Our 2015 S&P/TSX Composite Index (S&P/TSX) price target is 15,300, which is based on a 17x P/E multiple and our $900/share earnings forecast. Adding in a 2.8% dividend yield, we see the potential for a total return of 7.5%. We expect the S&P 500 Index (S&P 500) to outperform the S&P/TSX for the fifth consecutive year.
• While we see further upside next year it will likely come with higher volatility as the US Federal Reserve (Fed) normalizes monetary policy by hiking interest rates in mid-2015. We see a decent first half followed by potential weakness in H2/15 as the Fed begins to hike rates.
• The technicals remain bullish and supportive of our fundamental call for additional upside. Key positive technical trends include: 1) the S&P 500 remains in a long-term uptrend and is above its rising 40-week moving average (MA); 2) market breadth remains supportive; and 3) numerous market cycles point to additional gains.
• Key risks to our outlook include: 1) growth deceleration from key regions such as Europe, Japan and China; 2) a stronger US dollar and its impact on the emerging markets; 3) significantly lower oil prices; and 4) the age of the current expansion cycle.
• We will host a 2015 Market Outlook conference call on Thursday January 8, 2015, outlining our key investment themes and top equity ideas for 2015. Details to follow.
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