UBS: Up or down, 2016 is gonna be a wild ride for stocks
As 2015 nears its end, the 2016 market outlooks from Wall Street have started rolling in.
UBS' is out, and the firm has a year-end S&P 500 price target of 2,275. A drop down to 1,750 next year that would effectively end the bull market is "quite improbable", in the firm's view.
The S&P closed Tuesday at 2,081.
In a note to clients on Tuesday, equity strategist Julian Emanuel and team wrote that a positive market reaction to interest rate hikes (which they think will first happen in December) would be the biggest upside risk for stocks.
Stocks would also be supported by strong M&A activity, healthy corporate balance sheets, and US economic growth - the same things that drove the market to new highs in 2015.
But if earnings growth continues to be scarce, and international growth concerns become front and center of markets again, they'd pose the biggest risk to stocks.
And with all these things quite probable at the same time, stocks are likely to have a wild ride in both directions.
"The volatility regime has shifted higher as rising risk is quite normal at this point in the market cycle where the rally is maturing and the Fed is poised to begin raising interest rates," Emanuel wrote.
We highlighted that last week, Emanuel wrote that the bull market in stocks looked like it had entered the "late innings". Last month, Emanuel cut his year-end S&P 500 target to 2,125 from 2,225.
UBS
He wrote on Tuesday:At 81 months and counting, the current bull market is one of the longest on record. That said, no bull market since before the 1970's has ended without a recession and both our US Economics team or our US Credit US Equity and Derivatives Strategy Strategy team do not forecast a near term recession. Simply put, barring an unforeseen external shock or a recession, if earnings continue to improve, 2016 should be a positive year for US equities. Regardless, we continue to expect further volatility - which in essence means higher risk, both upside and downside.
Emanuel forecasts an increase in S&P 500 earnings per share from an estimated $120 this year to $126 next year, a 5% increase that would be driven by stronger GDP growth and consumer spending.
However, oil prices would be a "significant wild card" that swings this estimate either way. And, the strong dollar is likely to continue being a drag on corporate earnings.
Here's an overview of UBS' key forecasts:
UBS