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HOW HIGH CAN THE S&P 500 RISE IN THIS BULL CYCLE?

We have been asked, “How far can the S&P 500 rise in this bull cycle?”
While it is not our practice to set specific price targets, an exercise that examines this question using three different
approaches showed that the journey was far more important than just the destination. First, these techniques revealed a
cluster around the 2600 level, indicating an upside potential of about 3%. The sensitivity analysis of these forecasts are
equally interesting, as risks are asymmetric and tilted to the downside.
Under these circumstances, we suggest that balanced fund investors take profits in their equity positions and re-balance
their portfolios back to policy weights. Stock prices have outperformed bonds for several quarters, and investors with
balanced fund mandates will have seen their equity weights naturally drift upward. Re-balancing back to policy weight
can be viewed as a prudent course of action.
Investors with equity-only mandates may also wish to take steps to prepare for a possible recession in the next 1–2 years
by avoiding stocks with high bankruptcy risk. Managers can still outperform by avoiding the losers under a recessionary
scenario. We have conducted a full study of our bankruptcy analysis on the non-financial stocks in the S&P/TSX
Composite and the Russell 3000. Clients who would like a copy please contact Ed Pennock at (647) 287-6800 or by email
at [email protected].