With interest rates sitting at record lows and the Australian dollar continuing to fall – which is expected to boost the earnings of a number of listed companies – analysts and stockbrokers are divided as to how high the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) can climb over the next year.
Scott Bennett from Russell Investments believes that the market will be driven by high yielding stocks over the next 12 months, expecting that more and more Australians will put their money in stocks for income as opposed to in savings accounts or term deposits. Whilst the group expects the market to remain volatile until at least the end of the year, it also believes that anywhere "between here (around 5,111 points) and, say, 5,500 looks fair value."
On the other hand, Charlie Aitken, a stockbroker for Bell Potter Securities, predicts that the index will hit the 6,000 points mark again within 12-18 months. Charlie Lanchester for Perpetual Investments isn't quite so optimistic about the time frame set forth by Aitken, but believes that "it will get to 6,000 – at some point… Maybe not within 12 months – it's slightly optimistic but you never know."
Based on the views of each of the experts mentioned above, it seems that common belief is that the market will be driven predominantly by high yielding stocks. For instance, whilst the banks each suffered a significant setback between May and June, each have largely recovered their losses.
Commonwealh Bank (ASX: CBA) set a new record closing price of $74.21 per share on July 31 and Westpac (ASX: WBC), ANZ (ASX: ANZ) and NAB (ASX: NAB) have each recovered between 13%-16% since the beginning of June. Meanwhile, the country's largest miners, telcos and health stocks have also seen significant gains recently.
Foolish takeaway
Whilst it is a popular belief that the market will continue to climb on the back of strong performances from the defensive high yielding plays, investors looking for longer-term investments may prefer to look elsewhere for alternative options for your portfolio. For example, although many believe the banks will continue to drive forward in the coming months, it is highly unlikely that they can outperform the market in the long term.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
