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Markets could be in for a hangover in 2015

Wednesday, December 31, 2014 - 01:54

After a two-year bull run that has propelled stocks higher by nearly 50 precent, there are some headwinds for 2015. Bobbi Rebell reports.

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After a two-year party that saw stock indexes jump higher by nearly 50 percent, investors may now face a hangover in 2015. Reuters U.S. markets editor David Gaffen: SOUNDBITE: DAVID GAFFEN, REUTERS U.S. MARKETS EDITOR (ENGLISH) SAYING: "Valuations now have reached a point where people are starting to see them as expensive and so as a result the question is whether this economic acceleration we are seeing is something that can be repeated in the market or whether the market has kind of factored that in already in its gains that we saw this year." In fact, based on price to earnings ratios, stocks are getting more expensive - at the beginning of the year the S&P 500 price to earnings ratio was about 13 times- now its closer to 17 according to Thomson Reuters data. Part of what's been driving stocks has been corporate earnings - but forecasts for the first half of the year have not been encouraging, with growth rates seen lower. And higher interest rates that are expected to come from the Fed - could raise financing costs for companies. That in turn could reduce share buybacks - one of the main drivers behind recent lofty stock market gains. But just because the gains may be tempered- doesn't mean it won't be a good year. Wells Fargo Advantage Fund's Chief Portfolio Strategist Brian Jacobsen: "Instead of being in a euphoric state which would suggest that we are in sort of a bubble territory when it comes to valuations we are more in just sort of a realistic state " Jacobsen sees the S&P 500 at about 2300 by the end of 2015 - a bit more optimistic than Reuters's survey of economists, according to Gaffen: SOUNDBITE: DAVID GAFFEN, REUTERS U.S. MARKETS EDITOR (ENGLISH) SAYING: 'General consensus about next year is this that the S&P will end the year next year at 2200. Now we are already at 2083 or something in that various range. That is about a 5 or 6 percent gain." While cautious, few analysts are calling for a bear market - given the continued strength in the U.S. economy.

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Markets could be in for a hangover in 2015

Wednesday, December 31, 2014 - 01:54