SOOTHSAYER CONSENSUS (Positive Consensus/Bear Market Indicator): Stocks to continue ascent

April 21, 2015

Even with interest rates expected to start increasing, threats of deflation, threats of Greece leaving the Euro (again), an entrenched slowdown in China, and a soaring US dollar, the Soothsayers continue to pound the table for stock prices to rise. According to Pavilion Global Markets,

"...the bottom-up consensus call is for the average stock in the S&P 500 to gain 8.7 per cent during the next 12 months. This is an improvement from late February, where projected appreciation was a little more than 6 per cent, but still near the low end of the range for the past decade..."

When you drill down into the sectors, the optimism becomes even more profound, even in the energy sector which has seen a mother of all pull backs.

"...On a sectoral basis, Industrials, Materials, and Telecommunications Services are expected to enjoy double-digit advances; Energy stocks are projected to rise by just 5.1 per cent, according to analysts..."

Now we have to preface these prognostications with some history. For more than a decade, this consensus has never called for the S&P 500 to decline year-over-year, even at the height of the financial crisis. Even when stock prices were falling 35 percent, the Soothsayers were firm in their convictions.  Perpetual giddiness reigns with the Soothsayer Consensus despite the fact that analysts are taking down their earnings projections.

These convictions could carry some merit in the short term as long as Central Banks, specifically the Federal Reserve continue to get cold feet and resist increasing interest rates. At some point though interest rates will normalize and it will be hard for stock prices to stay competitive at current levels.