Apple's Next Milestone

By Nicholas Jasinski |  Thursday, December 9 Looking Ahead. Stocks indexes took a breather today, after a more-than 4% rally just since the start of December. The S&P 500 closed down 0.7%, the Nasdaq Composite lost 1.7%, and the Dow Jones Industrial Average gave up an afternoon gain to close about flat on the day. There wasn't much of a catalyst for the declines. The day's headlines included a half-century low reading for U.S. weekly initial jobless claims, European Central Bank rumblings about reducing bond purchases, and some individual company news. Nothing major to rock the boat in one direction or the other. Stocks sometimes just go down after a multi-day winning streak.  Investors are beginning to turn their attention to 2022 in earnest. Year-ahead outlook season is in full swing, with major banks and research shops flooding investors' and financial journalists' inboxes with lengthy reports on what to expect from markets, the economy, and fiscal and monetary policy in 2022. After a roughly 25% rise in the S&P 500 already this year, most strategists see little to like from the index in 2022. Forecasts are largely for a flat-to-down market on the index level next year. Here's Barron's Jacob Sonenshine writing today: Credit Suisse thinks the index is set for a modest gain 10% for roughly the next year. Citigroup strategists see the index gaining just 4.5% through next year, well below the historical average annual gain of 9%. Strategists at Morgan Stanley see the S&P 500 dropping by about 6% from current levels to the end of 2022. One major driver of the tepid stock-market expectations is lower valuations. [Morgan Stanley] sees the aggregate multiple on expected earnings per share for the next year on the index of 18 times, below the current 21.2 times. Lower valuations would be mostly driven by higher bond yields; the Federal Reserve is rapidly tapering, or reducing the amount in bonds it buying per month, which could drag down bond prices, and lift their yields up, making future profits less valuable.  But Credit Suisse’s bullish call on the S&P 500 is based on a valuation that barely budges, combined with earnings that can keep growing faster than expected. The strategist’s price target for the end of 2022 is 5,200, up from a prior forecast of 5,000. "Quality" stocks are emerging as a relatively frequent call for 2022. Those are generally companies with quantitative characteristics like higher-than-average returns on capital, relative earnings stability, and lower-than-average debt loads. They also tend to be in fundamentally strong industries with wide competitive moats around their businesses. Those are the kind of stocks that can see their earnings rise faster than their valuations potentially fall next year. Think companies like Visa, Microsoft, or JPMorgan Chase.

 

DJIA: -0.01% to 35,754.69 S&P 500:  -0.72% to 4,667.45 Nasdaq: -1.71% to 15,517.37 The Hot Stock: Hormel Foods +4.7% The Biggest Loser: Tesla -6.1% Best Sector: Consumer Staples +0.3% Worst Sector: Consumer Discretionary -1.7%