Will The S&P 500 Reach 2,225 By December?

The S&P 500 has been on a roller coaster this year, making very little headway despite growing confidence in the United States economy as a whole. It recently took a dive on the back of negative news out of China, with the country devaluating its currency on weak economic trends.

It’s taken its toll on investors, many who have said that the index, which has risen 75% over the last five years, is in need of a correction. Others, like former presidential candidate Ron Paul, have said that the stock market in the United States is in for a “day of reckoning,” suggesting more than a little correction can happen.

The eternal optimist?

Recently, however, we’ve received a good prediction for the market, albeit interesting. Julian Emmanuel, U.S. equity and derivatives strategist at UBS, said recently in an interview with CNBC that he expects the S&P 500 will hit 2,225 points by the end of the year. To give you an idea of how optimistic that is, the index sits at 1,969 at the time of this writing, meaning Emmanuel is calling for a 13% increase over the next four months.

"People are waiting for conditions to get better and the money will come in,” says Emmanuel. “There's a very pronounced tendency for fourth quarters to be good because people do look ahead to the next year, where we see an earnings recovery that's going to drive the market higher."

Hold on there

Not too long after Emmanuel’s remarks, Bank of America Merrill Lynch cut its year-end price target for the S&P 500 to 2,100 points, a 6.7% increase from where it is now. It’s optimistic, to be sure, but not nearly as optimistic as Emmanuel’s forecast.

“Policy stimulus and some recovery in commodity prices could help to stabilize and boost EM growth into year-end,” said Savita Subramanian, head equity and quant strategist at BofAML. “And just as selloffs can be fast and furious, so too can the rebounds.”

So yes, it’s likely that we’ll see a rebound of sorts, but will it be as high-flying as 2,225 points? Unlikely. There’s simply not a reason for it. Year-to-date the index is down 4.35%. It’s taken two years for it to grow 17%. Is it really realistic to believe that we’ll see a 13% increase in just the next four months? While we may not see external factors that continue to push U.S. stocks down, like Emmanuel suggests, where’s the positive catalyst that gets investors as excited about the market as they were uncertain when the bottom fell out a couple weeks ago.

It will, however, be interesting to see how other factors, such as the anticipated Federal Reserve rate hike and ongoing consumer and investor sentiment and jobs numbers, play out. If anything, these will be the main drivers for the type of growth Bank of America Merrill Lynch is talking about. However, I don’t see any of them being enough to push the index higher than that.