Birinyi Says S&P 500 May Hit 1,700 in Echo of 1995 Sentiment

The Standard & Poor’s 500 Index (SPX) has the potential to reach a record high of 1,700 this year should economic growth surprise investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said.

Reaching that level would mean a 24 percent rally from today’s close of 1,374.09, data compiled by Bloomberg show. The benchmark gauge for U.S. equities gained 103 percent since it reached a 12-year low on March 9, 2009. In 2012, it’s off to the best start to a year since 1991. The measure’s all-time high of 1,565.15 was set in 2007.

An expansion that exceeded forecasts in the world’s largest economy would help stocks rally after economists tempered their estimate for growth in 2012 to 2.2 percent from 2.3 percent earlier in the year, according to Laszlo Birinyi, who was among the first to suggest buying stocks in March 2009. The potential for surprise is similar to 1995, when the yield on the 30-year U.S. Treasuries (USGG30YR) fell 1.93 percentage points, even as Wall Street predicted they would gain, according to a report from the Westport, Connecticut-based firm.

“In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting -- perhaps insisting -- an alternative to that consensus,” Birinyi wrote in the note today. “We continue to be bullish and would encourage a more aggressive posture.”

1982, 1990

Should economic data show signs of improvement, the S&P 500 may post a rally similar to the bull market that started in 1982, when the index advanced 229 percent, or the one that began in 1990, when it surged 302 percent, according to Birinyi. Reports on home sales and jobs have been better than estimated so far in 2012. The Citigroup Economic Surprise Index (CESIUSD) for the U.S. is at 45.1, up from negative 117.2 in June.

“If the market is right and the economy surprises us on the upside, gains similar to 1982 and 1990 are a distinct possibility and one which no one has entertained,” he wrote.

He stood by his bullish calls last year even as the S&P 500 fell five straight months starting in May. He said on Sept. 12 that U.S. companies were earning too much for the bull market to be derailed by Europe’s debt crisis. The S&P 500 is up 19 percent since then. Birinyi advised investors to “be in the market” during a Dec. 6 interview with Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

In January 2011, Birinyi said the average length and size of bull markets suggested the S&P 500 would rally to 2,854 on Sept. 4, 2013.

“That number hasn’t gone away,” Jeffrey Yale Rubin, director of research at Birinyi Associates, said during a phone interview today. “It’s not like Birinyi is lowering the target, because that’s way out there, almost to 2014.”

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.