NEW YORK — Stocks can keep climbing next year, tacking even more gains onto their phenomenal run of the past five-plus years. Just don’t expect them to be as big — or to come with as little heartburn — as before.
For a hint of what it may be like, just look back a few weeks when the Standard & Poor’s 500 index declined more than 7 percent from mid-September through mid-October. The tumble raised investor anxiety, but a stream of strong earnings reports helped it dissipate. The S&P 500 has since climbed to another record high.
Here’s a look at the expectations of fund managers for 2015:
• Stocks can rise even more. The economy is growing, and employers have added more than 200,000 jobs for nine straight months, the longest such streak since 1995. The stronger job market means consumers will have more money to spend. Another positive is lower gasoline bills, now that the price of crude oil is close to a four-year low. The hope is that companies will generate more revenue as a result.
• But don’t expect gains to be big, or smooth. Few fund managers argue that stock prices are cheap, at least relative to their earnings. Instead they debate whether stocks are just a little more expensive than normal or a lot more.
The S&P 500 has more than tripled since hitting bottom in early 2009, rising faster than corporate profits.
Stocks in the index are trading at nearly 17 times their earnings per share over the past 12 months. In early 2009, the index’s price-earnings ratio was just above eight.
Because of their high price tags, fund managers say further gains for stocks likely will have to come from earnings growth. Next year, analysts are broadly calling for a rise of 9.9 percent.
• Rising rates don’t always kill stocks. Interest rate hikes historically have scared investors. They make borrowing more expensive and slow economic growth.
The last time the Federal Reserve System began raising rates, in 2004, the S&P 500 lost nearly 7 percent in about six weeks.
But after that initial tumble, the market went on to rise nearly 20 percent by the time the Federal Reserve had finished raising rates in 2006. That’s similar to the S&P 500’s performance in several other rate-hike campaigns, says Andrew Goldberg, global market strategist with J.P. Morgan Asset Management
• The bargain bin is full of foreign stocks. Value investors turned off by U.S. stocks can find better bargains abroad. European stocks were recently trading at 13.5 times their expected earnings per share over the next 12 months, for example. Their U.S. counterparts were trading at 16 times, according to index provider MSCI.
