Barring a major collapse over the next two trading sessions, 2013 will be the best year for the S&P 500 (SPY) since 1997. The price return of 29% through 12/27 was a shocker that surprised even those of us who were bullish. My own forecast was for a double-digit return, as I had predicted a year-end close of 1664 a year ago:
I base this on ending the year at 14.5 PE on a forward basis (this implies a 2014 EPS estimate of almost $115)... If I had to guess, my forecast this year will be wrong again, except too conservative rather than too aggressive.
I updated the forecast in early August:
I have been suggesting that my original forecast of 1664 for year-end 2013 on the S&P 500 is likely too conservative. As the market approaches 1700 with 5 months to go, it's not difficult to imagine that the trends towards PE expansion persist. The earnings numbers, which I had thought might come down as the year progressed, have not. Instead, these estimates continue to suggest more of the same: Modest growth.... I am raising my year-end forecast to 1740 (15 PE on $116 of S&P 500 projected 2014 EPS).
While I had expected 1800 to act as a ceiling, the market ended up going a bit higher. Based on what is now a $117 consensus for 2014, the current forward PE is 15.7.
Before we discuss 2013 and think about 2014, here are the last 63 years of annual price returns: