NEW YORK — Stocks can keep climbing next year, tacking even more gains onto their phenomenal run of the last five-plus years. Just don't expect them to be as big — or to come with as little heartburn — as before.
That's what fund managers are forecasting, as they peer ahead to 2015. 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 index has since climbed to another record.
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. ''Everything is pointing to companies making more money going forward,'' says Neil Hennessy, chief investment officer of Hennessy Funds.
The stronger job market means consumers will have more money to spend. As will 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. Since the recession, corporate profits have grown largely as a result of cutting expenses.
Companies are squeezing more profit from each $1 in revenue than ever before: nearly 10 cents, up from an average of 6.5 cents over the last 20 years, according to S&P Dow Jones Indices. That means any increase in sales will quickly boost earnings.
But don't expect gains to be huge, 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 last 12 months. In early 2009, the index's price-earnings ratio was just above 8.
But fund managers say further gains for stocks will probably have to come from earnings growth. Next year, analysts are broadly calling for a rise of 9.9 percent.
So instead of seeing another 2013, during which the S&P 500 surged 29.6 percent, it may be safer to expect annual gains closer to 5 percent or 6 percent in the next few years, says Bill Stromberg, head of equity for T. Rowe Price.
Rising rates don't always kill stocks. Interest rate increases have historically scared investors. They make borrowing more expensive and slow economic growth. The last time the Federal Reserve 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-raising campaigns, says Andrew Goldberg, global market strategist with J.P. Morgan Asset Management. Stocks usually fall when the Fed begins increasing, but can reverse course after the market digests the news.
The key is whether interest rates are rising off a low starting point, Goldberg says. If they are, higher rates aren't that much more restrictive for the economy. And rates are very low now.