Expansion in U.S. housing, recovering markets in Europe where bank shares have rallied 36 percent since June and buying by individual investors will push the advance in equities to its fourth and final stage, “acceptance,” said Birinyi, the president of Birinyi Associates Inc. The benchmark gauge for American equity is within 10 percent of its record after gaining 107 percent since March 2009, data compiled by Bloomberg show.
Birinyi, the former Salomon Brothers Inc. executive, is sticking to the bullish forecast he has given to clients of his Westport, Connecticut-based research firm since stocks hit a 12- year low following the credit crisis four years ago. The 69- year-old money manager says the bull market that began in March 2009 resembles advances that pushed equities up more than threefold in the 1980s and fourfold in the 1990s.
“We’re still very comfortable with the market,” Birinyi said in a telephone interview on Dec. 20. “Our view all along since 2009 is that we’re in the midst of a protracted bull market, similar to 1982 and 1992, markets that went on for four or five years.”
More than $8.4 trillion has been restored to U.S. share values since the rally began, according to data compiled by Bloomberg. The S&P 500 slipped 1.9 percent to 1,402.43 last week, trimming its 2012 increase to 12 percent.
The benchmark gauge rose 1.7 percent to 1,426.19 today as Congress worked to reach a budget agreement. Senate Republican Leader Mitch McConnell said lawmakers had reached an agreement on all tax issues and were “very, very close” to a deal to avert the so-called fiscal cliff.
Banks and brokerages led the 2012 rally, rising 25 percent, followed by companies dependent on consumer spending, whose shares climbed 19 percent. The S&P 500’s advance in 2012 exceeded the average prediction of 12 Wall Street strategists tracked by Bloomberg at the start of the year, who called for a rise of 6.9 percent to 1,344.
Companies highlighted by Birinyi at the start of the year have posted mixed returns. General Motors Co. and BlackRock Inc., which he recommended buying in January, are up 37 percent and 15 percent, respectively, while two other picks, Research In Motion Ltd. and People’s United Financial Inc., declined 19 percent and 6.9 percent.
Apple Inc. (AAPL), Birinyi Associates’ biggest stock holding as of Sept. 30, has climbed 26 percent in 2012, though it’s down 24 percent during the fourth quarter. The firm also had $34 million in the SPDR S&P 500 ETF Trust at the last reporting date. The exchange-traded fund increased 12 percent this year.
“We’re still bullish,” said Birinyi, who twice in 2012 said it was possible the S&P 500 would rise above 1,700 should economic growth accelerate. Now, he says, odds the index surpasses its old record of 1,565.15 set on Oct. 9, 2007, are greater than 50 percent as investors pile in.
“What keeps things going forward is more acceptance when we start to see the individual come back somewhat, when we see people redoing their asset allocations,” he said. “When we look at parallels to previous markets, we find them.”
Birinyi is predicting a reversal of the exodus from equities by smaller investors that has accompanied the S&P 500’s advance. More than $275 billion was withdrawn from U.S. stock mutual funds over the last four years and daily volume on American exchanges has averaged 6.4 billion in 2012, the lowest level since at least 2008.
Concern President Barack Obama and Congress will fail to compromise in budget negotiations has pulled the S&P 500 down 3 percent since reaching a two-month high on Dec. 18. The impasse last week sent the Chicago Board Options Exchange Volatility Index (VIX), a gauge of prices to protect equities against losses, to its biggest increase since August 2011, a month in which the threat of a U.S. default erased $1.1 trillion from stocks.
Back then, “you had a massive drop in stocks because you had a crisis of confidence in the government,” Roger Pine, a financial adviser at College Station, Texas-based Briaud Financial Advisors, which oversees about $500 million, said in a telephone interview. “In the short term, we’re looking at 2011 as the most direct and relevant precedent to today.”
The president returned from his holiday in Hawaii on Dec. 27 as lawmakers disputed which party would be responsible for missing the deadline for a debt deal, a failure that could hurt the U.S. credit rating and cause an economic recession. About $600 billion of tax increases and spending cuts will automatically take effect should no compromise be found.
Birinyi was bullish following the August 2011 rout in equities, saying on Sept. 12, 2011, that American companies were earnings too much money for the bull market to be derailed. Since then, earnings at S&P 500 companies have grown for another three quarters, data compiled by Bloomberg show.
Analysts predict profits will rise 5.2 percent this year to a record $103.41 a share, implying a price-earnings ratio of 13.6 for the S&P 500, about 17 percent below the six-decade average of 16.4. Gross domestic product will expand 2 percent in 2013 and 2.8 percent in 2014, according to the median response in a survey of 86 economists by Bloomberg.
“Expectations are for a gradual improvement for the U.S. economy once we pass this point of uncertainty, which will have a positive effect on the U.S. economy and follow through to global markets,” Chad Morganlander, a Florham Park, New Jersey- based fund manager at Stifel Nicolaus & Co., which oversees about $136 billion in client assets, said in a Dec. 27 in a phone interview. “The world’s not going to end yet.”
The U.S. housing market stagnated until this year, with a Dec. 28 report from the National Association of Realtors showing its index of pending sales of previously owned homes climbed 1.7 percent in November to 106.4, the highest level since April 2010. Home sales are picking up as consumer confidence reached an eight-month high earlier this month, according to the Bloomberg Consumer Comfort Index.
“If you look beyond the fiscal cliff you see the U.S. economy is actually getting better,” David Joy, the Boston- based chief market strategist at Ameriprise Financial Inc., which oversees about $680 billion, said in a Bloomberg Television interview Dec. 28. “You see that in housing. You see that in manufacturing,” he said. “Stocks are going to have a good year.”
European stocks have surged in the second half of 2012. The Stoxx Europe 600 (SXXP) is up 19 percent since June 4, advancing as the European Central Bank introduced bond-buying programs, S&P upgraded Greece’s debt and German business confidence rose more than forecast. The benchmark gauge’s 14 percent advance for the year is the best annual return since 2009.
The S&P 500 took about 25 years to reach a new high after the Great Depression and since then, it has taken three years on average for the index to surpass previous records, according to data compiled by Bloomberg. It’s been more than five years since the October 2007 high. The S&P 500 took about seven years in the 1970s and 2000s to exceed old highs.
For the Dow Jones Industrial Average (INDU), still 8.7 below its high in October 2007, it has taken about six-and-a-half years to surpass previous highs. Should stocks follow that path, the Dow wouldn’t post a new record until the middle of 2015.
“Right now, everything is just still very reluctant,” Birinyi said. “And when that changes, stock prices go higher. And where it ends in 2013? I really don’t think it does.”
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