Forecasts for the S&P/ASX 200 in 2016: 4,800 or 6,000?

Two large brokers have set themselves up at opposite ends of where they expect the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) to end the 2016 year.

But don’t take their predictions too seriously. Last year UBS forecast the ASX 200 would end around 6,000, instead, the index ended lower than where it started the year at around 5,000 points. Clearly, guessing where the market might be in 12 months’ time is no easy task.

On the bear side, we have Morgan Stanley, tipping the index to finish 2016 at 4,800. On the bull’s side, we have Credit Suisse which is sticking to its guns with a guess of 6,000. On average, analysts are guessing the index will finish at 5,700.

Morgan Stanley is using typical broker speak when it says ‘earnings per share growth remains weak and valuations stretched’. In simple terms, companies are struggling to grow and appear to overvalued.

Analysts say the heavyweight banks and resources still dominate the index and where they go – the index will follow. Morgan Stanley also says that earnings downgrades from a number of companies including iSelect Ltd (ASX: ISU) and Godfreys Limited (ASX: GFY) highlight the problems ASX-listed companies face in pushing higher in 2016.

But both iSelect and Godfreys appear to be the cause of their own downgrades, rather than anything representative of the Australian consumer, so I wouldn’t be using them as examples. Still, Morgan Stanley expects around 64% of companies in the ASX to report a decline in earnings per share.

Credit Suisse on the other hand says the bull market that began towards the end of 2011, will continue, and appears to have some confidence in Australia’s big four banks, Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), to overcome their current malais.

Equity strategist Hasan Tevfik expects Australian investors to expect total returns of more than 20% by year end.

Foolish takeaway

As the song goes, don’t believe the hype. Neither broker has the ability to time travel and their predictions are essentially guesses. You may as well pin some numbers on a dart board and throw a dart at it.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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