Need to Know: Here comes one more bullish S&P 500 call for 2018 — it’s all about earnings

Warner Bros/Everett Collection

Party like it’s 2018

Don the party hat and line up those resolutions, because it’s nearly curtains for 2017 and this blazing stock market.

“This is one of the greatest rallies any investor generation has experienced over the last 100 years,” tweeted out The Atlas Investors’s Tiho Brkan on Friday. “Lowest intra-year drawdown, strong total return and very low volatility stacks it next to the great 1995.”

Yep, plenty are singing the praises of markets as the year winds down. World stocks have risen every single month this year, while the S&P 500 has a nearly pristine record as well for 2017, with an annual gain that will be the best since 2013. Is it cheap? Not really, say some. Are investors a bit too excited? Maybe, say others.

Now Wall Street analysts are fairly bullish going into next year, but most of them are not willing to venture out too far on where they see the S&P 500 going from the current 2,687-and-change level.

Enter our last Call of the Day of the year for this column, from Michael Kramer of Mott Capital. He offers a compelling argument as to why investors can expect a 15% gain for the S&P 500 next year, to a level of 3,100.

“It comes down to simple basic math and has to do with earnings growth. According to Dow Jones S&P Indices, estimates [called for] earnings in 2017 of $114.70, and that is expected to grow by 18% in 2018 to $135.40,” writes Kramer on the Mott Capital blog.

Up and away

Since the fourth quarter of 2013, the S&P 500 has been trading around 23 times trailing earnings, and since 1988, just over 21.5 times on average, he says. Excluding the four quarters during the financial crisis of 2008-2009, trading between 15.5 and 27.5 times for the index should be considered a normal trading range, said Kramer.

The S&P 500 is currently trading at 19.8 times 2018 estimates, but at 21.5 times, he estimates the index would move up to 2,910. And if the S&P 500 makes it up to a 23-times average, that means we could see 3,100 in 2018, he says.

If this is all way too cheery for you, here’s a whole laundry list of risk factors to think about for 2018.

So farewell 2017 and to our faithful readers, we do mean it when we say many happy returns.

Key market gauges

Things are perking up for the last day of trade, with futures for the DJIA YMH8, +0.32%   and S&P 500 ESM8, +0.44%   ready to power to fresh records and the Nasdaq NQH8, +0.32%  also setting up for a win. Asia closed out with records, such as the Nikkei NIK, -0.08% which logged its biggest gain since 2013. Europe SXXP, +0.12%  is having a sluggish day.

The dollar DXY, -0.42%  is set to suffer its worst annual loss since 2003. Gold GCZ7, +0.12% is up just a little, while oil prices CLG8, +0.35%  are poised to finish the year at 2 1/2 year highs.

Bitcoin BTCUSD, +1.70%  tapped $15,000 in Asia, but has since pulled back to around $14,269. Check out CoinDesk’s rundown of the biggest scams and hacks to hit blockchain in 2017.

Also read: Ethereum’s founder rants against immature crypto traders

The chart

Oil prices have been making some headlines lately, in an end-of-year bolt higher. It stands to reason then that related companies may also be worth watching for 2018. Larry Tentarelli of the Trend Trading Signals says many companies in the oil-services sector have recently crossed above their 200-day moving averages in the last few weeks.

If that keeps up, then these companies could offer “considerable upside potential,” he writes. Transocean RIG, +0.00%  , Diamond Offshore DO, -1.34%  , Whiting Petroleum WLL, +1.83%   and Noble Energy NE, +0.68%  and the SPDR S&P Oil & Gas Services ETF are all meeting his criteria.

The stat
Getty Images

New York will probably get more crowded in 2018

326,971,407 — That’s the expected population of the U.S. on New Year’s Day, according to the latest Census Bureau figures, which is 0.7% higher than a year ago. And it expects one birth every 8 seconds and one death every 10 seconds in January.

The buzz

Citing the Republican tax overhaul Netflix NFLX, +3.47%   said it would hike salaries for several top executives. Standing out in that SEC filing, Chief Content Officer Ted Sarandos will rake in a base salary of $12 million in 2018.

Apple AAPL, +0.28%  is trying to make amends with its customers over the battery-slowing fiasco, with an apology, discount on battery replacements and a new support page. But not everyone is happy:

Plus: How Apple is getting ready for an AI future

SoftBank 9984, -0.11%  is buying a 15% stake in Uber, at a cut-rate price.

President Trump gave a long, rambling interview to the New York Times. Among the highlights: the use of the word “collusion” at least a dozen times; how badly the media needs him to stay in power; and an assertion that Democrats “walk around blinking at each other.”

And his tweet about “good old Global Warming,” has annoyed several weather experts like this one:

The quote

Firefighters on the scene in the Bronx, New York Thursday

“Tonight in the Bronx we’ve seen the worst fire tragedy in at least a quarter of a century. It is an unspeakable tragedy, and families have been torn apart.” That was New York Mayor Bill de Blasio on Twitter commenting on an apartment-building blaze that quickly swept through a five-story apartment building, killing 12 so far, the youngest aged 1.

Random reads

Disney has done away with ‘Do Not Disturb’ signs in the wake of the Vegas shootings.

A Zimbabwean family has been stuck in a Bangkok airport for weeks.

Love your G&T’s? You could be a psychopath.

CEO of a U.K.-based bitcoin exchange kidnapped.

Bone-chilling cold and lockdown. Welcome to New Year’s Eve in Times Square.

Making snow. This is what minus 39 degrees looks like.

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