We're officially in the thick of crystal ball-gazing season.
To that end, Barclays Plc Head of U.S. Equity Strategy Jonathan Glionna detailed a list of five predictions for U.S. stocks next year. In a note to clients on Tuesday, the strategist sees rising profits and payouts propelling the S&P 500 Index up by 7 percent in 2017. Here's more:
Adjusted Earnings Will Rise To 'At Least' $127 Per Share
More robust revenue growth will dwarf the downward pressure from wage inflation that's emerged as major threat to corporate America's margins and profitability, as well offset the renewed strength of the U.S. dollar, which reduces the value of profits earned abroad.
A nominal growth rate for the U.S. economy of 4.8 percent in 2017 will be the biggest motor for S&P 500 companies' improved earnings, according to Glionna, who expects them to hit "at least" $127 per share.
"Recall, slow top line growth has been a challenge for more than two years," he writes. "If our model is right, top line growth will reach 3.4 percent in 2017, the best result since 2014."
The "at least" part of Glionna's estimate doesn't take into account the potential for tax reform under Donald Trump's coming administration, which would push his estimate for adjusted EPS up to $133 — the same level that consensus bottom-up forecasts for 2017 are currently sitting at.
Dividends Will Eclipse $48 Per Share
Hitting this level would mean payouts-per-share would rise by more than 50 percent over five years.
"To be sure, the pace of dividend growth is decelerating but still ample," the strategist notes, citing an elevated payout ratio. "We believe the strong growth in dividends achieved over the last five years pulled forward some future growth and therefore EPS needs to catch up, meaning an estimate that modestly lags projected EPS growth is appropriate."