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Target Adjustment:Underlying Fundamentals Support Raise in S&P 500 12-Month Target

S&P Capital IQ’s Investment Policy Committee raised its 12-month target for the S&P 500 to 2200 from 2100, representing a 10% price increase for the U.S. equity benchmark during the coming year, based on the Sept. 3 close. The allocation was unchanged at 65% global equities and 35% fixed income. According to S&P Capital IQ consensus estimates, operating EPS are projected to rise 11.8% from Q3 2014 to Q3 2015. In addition, the year-over-year increase in headline CPI is expected to remain close to the current 2.0% level. Even with the possibility of P/E contraction to below 17X as this bull market ages, we believe underlying fundamentals support this projected price appreciation for the U.S equity market in the coming year.

From a technical perspective, the stock index futures continue to show a market that has had a substantial move to the upside, but is showing signs of losing momentum. The Dow continues to work at breaking above its July high, but has been unable to extend much higher. That said, without any selling pressure or signs of failure, its positioning remains much more bullish than anything else. The S&P and Nasdaq have also shown a flattening of their rallies and could see pullbacks as well. Yet declines in these benchmarks will be considered normal corrections in an ongoing uptrend should they remain above support. Separately, gold trades near support at 1258. The bias will remain bearish while under resistance at 1285-90. Below 1258, however, lower support lies between 1233-40.

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