S&P 500 Blew the Top Off Wall Street’s Expectations in 2014

Most of Wall Street didn't see 2014's stock surge coming.

With its close at 2058.90 Wednesday, the S&P 500 ended the year up 211 points from where it started. That was good for an 11.4% gain, nearly double the average expectation of strategists at the start of the year.

The mean year-end target estimate at the beginning of 2014 was 1955, which would have meant a 5.8% gain for the year, according to the predictions compiled by Birinyi Associates Inc. Ultimately, that prediction was 104 points, or 5%, shy of where the S&P finished the year.

After two straight years of double-digit growth for the benchmark index in 2012 and 2013, which propelled the S&P 46% higher, estimates were tempered heading into 2014 as the Federal Reserve's stimulus slowdown loomed and investors were starting to see signs of slowing global growth, especially in China.

But in reality, the S&P climbed pretty steadily, regularly setting fresh records and causing market watchers to up their forecasts as the U.S. economy showed signs of improving, interest rates remained low and corporate America stayed strong.

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Strategists' average target at the start of the second quarter was 1961; at the beginning of the third quarter, it was 1972; and at the onset of the fourth, it was 2057.

Thomas Lee, formerly a strategist at J.P. Morgan (JPM), may as well have popped the champagne early Wednesday night as his initial estimate of 2075 proved most accurate. It came within 16 points of where the S&P settled at the close.

Mr. Lee started his own firm, called Fundstrat, in September and provided an upwardly revised outlook of 2100 for the end of the year at the time. That updated figure ended up being overly-optimistic.

But most other estimates for the year fell short. Here's how strategists' initial forecasts stacked up against the year-end level:

*Thomas Lee moved to Fundstrat

**Barry Knapp was succeeded by Jonathan Gilonna