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Wall Street's SPX 2021 Forecasts versus Technical Projections

The average annualized average return in SPX since its inception in 1926 is approximately 10%. The historical average annual return adjusted for inflation return falls to around 7%. S&P 500 Index has already gained 9.08% on a year-to-date basis.


One of the problems that investors may encounter in the years ahead is whether the inflation-adjusted average is accurate given the wide swings in the Consumer Price Index (CPI) over the past year. The uncertainties surrounding the pandemic, the reopening, the easy money from the FED, and the massive stimulus from Congress can also skew the CPI and other inflation metrics.


If investors vastly understate or overstate the actual inflation rate, this can have a ripple effect across the financial markets. The inflation rate is an integral part of equity pricing, fixed income allocation, asset allocation models, hedging, pension/endowments funding, etc.


What are Wall Street's top strategists' projections for SPX by the end of the year?


Wall Street market pundits are mostly forecasting favorable returns by the year-end 2021. The 15 Strategists polled in a CNBC survey suggests an average SPX target of 4,099 and a median target of 4,100. Based on an SPX 12/31/20 close of 3,756.07, this would imply a 9.13% return or close to the SPX Index's historical yearly average return of 10% since its inception.


One of the more bullish SPX targets comes from JP Morgan Chase. JPM Strategist's Dubravko Lakos-Bujas has a high forecast of 4,400, based on 2021 EPS of 178 and implied P/E of 25. Two of the more defensive calls come from the Strategists from Bank of America/Merrill Lynch and Citi. Savita Subramanian from BAC/Merrill has projected 3,800 on SPX based on 2021 EPS at 165 and implied P/E at 23. Citi's Tobias Levkovich has also forecasted SPX of 3,800, based on 2021 EPS of 167 and implied P/E of 23.

It is always newsworthy to have the highest or even the lowest SPX forecast on the Street, as it attracts widespread press and media attention. Forecasting SPX targets is a difficult task under normal market conditions. However, with the uncertainties surrounding the pandemic environment and the reopening, it becomes even more challenging.


Nonetheless, Wall Street forecasts are still important. Not because the projections may come to fruition. Rather they are an excellent barometer of investment sentiments. The SPX predictions will help to gauge the mindsets of investors via the herding mentality phenomenon. For instance, many investors such as retail investors, professional investors, money managers, and others tend to use these SPX yearly forecasts to implement various equity allocation strategies. The more influential the strategists, the larger the herding toward these SPX targets.

One of the premises of the technical analysis discipline is the stock market discounts everything. All news and developments are already priced into the stock market. After all, the stock market price reflects the sum knowledge of all participants, including traders, investors, portfolio managers, smart money, retail money, etc. If everyone is projecting a specific SPX target by year-end, the market will have already anticipated this, and the projected target will either be achieved much sooner than expected or not at all.


Enclosed below are our technical projections for SPX this year:


161.8% Fibonacci Projection = 4,136 (near-term)


2-month March 2021 breakout above 3,950.43 = +227.09 or 4,177.5 (medium-term)


V-pattern breakout above 3,393.52 (Aug 2020) = +1,201.66 or 4,595 (intermediate-term)


In summary, based on the 2021 CNBC survey of the 15 Wall Street Strategist, the average SPX projections for year-end 2021 is 4,099. The average median is also 4,100. SPX closed at 4,097.17 on 4/8/21 or within 3 points of the average year-end 2021 projections.


It will be interesting if the Wall Street Strategists raise their projections as SPX nears 4,100. Our technical target remains 4,136-4,177.5, based on the 161.8% Fibonacci Projection and the recent 3/11/21 technical breakout target. Another market consolidation may occur possibly during the Sell in May and Go Away timeframe.


However, the V-pattern breakout above 3,393.52 still has not reached its minimum technical projection of 4,595. Will another consolidation help alleviate an impending overbought condition and set the stage for the next sustainable SPX rally toward 4,595 during the second half of the year?


Source: Courtesy of CNBC and StockCharts.com

Source: Courtesy of StockCharts.com

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