After an extremely strong 2013 and a strong 2014, now the bull market is nearing its sixth year. This has investors and analysts alike wondering what sort of upside to expect in 2015. Merrill Lynch’ Savita Subramanian, equity and quant strategist, finds it difficult to sustain bullish outlooks that the firm had in 2013 and 2014 for equities. The forecasts for equities looking forward are perhaps the lowest S&P returns since 2011.

Savita’s S&P 500 price target for the end of 2015 is 2,200 — implying gains of more than 6% from current levels. 24/7 Wall St. would note that this is slightly different from the 5% or so called by Goldman Sachs in their broader 2015 predictions.

Stocks are expected to remain more attractive than bonds but against another asset class is not entirely clear. Resulting from the bull market in stocks and the bear market in equities, gold and oil are now considered cheap versus stocks on a historical basis. Merrill Lynch’s earnings forecast implies a healthy 6% growth rate and would comment that the bull market is not yet over — but it is a time to be more selective.

Considering that selectivity will be key, industry allocation for 2015 will be critical. However, looking forward there may be momentum breakdowns and value traps. For example, while Merrill Lynch likes Energy for the long-term, there could be a value trap in Energy Equipment & Services in the near term.

In terms of actively managed funds for this year, Merrill Lynch believes that crowding was a significant driver of underperformance and this may have been exacerbated by the continued shift toward passive investments. Looking forward, ailing active manager performance along with increasingly onerous industry regulations that stifle credit availability may result in further outflows from active strategies.

Savita Subramanian would detail in the report about the difficulties of finding good valuation ideas:

“Nothing is cheap, nothing is expensive” is the verdict, likely the result of record low valuation dispersion among stocks. Even the growth and value benchmarks are behaving similarly. But there are still ‘fat pitches’ to be had: perceived risk is cheap and perceived safety is expensive. As investors have flocked to bond proxies and secular growth, some stocks with perceived, but not actual, risk could be the ultimate bargains of 2015.”

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