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Barclays Raises S&P 500 Forecast to 1,800 for 2013 on Fed Policy

Barclays Plc (BARC) boosted its estimate for the Standard & Poor’s 500 Index (SPX) to 1,800, the highest 2013 projection among Wall Street equity strategists, on signs the Federal Reserve will wait to begin reducing economic stimulus.

The new forecast implies a 4.5 percent gain from yesterday’s close of 1,722.34 and exceeds the average strategist projection of 1,706, according to data compiled by Bloomberg. Barry Knapp, the New York-based head of U.S. equity strategy, had previously said the S&P 500 would finish 2013 at 1,600.

The U.S. equity benchmark has jumped 2 percent this week, poised for a third consecutive gain, after the Fed unexpectedly refrained from reducing the pace of its monthly $85 million bond buying program. The central bank will begin tapering the purchases in December at the earliest, Knapp said.

“‘Lower for longer’ monetary policy is more probable than we believed a week ago,” Knapp said in a research note today.

The Fed is now expected to begin trimming asset purchases in December, with 24 of 41 economists surveyed Sept. 18-19 saying the central bank won’t take the first step in slowing its economic stimulus until then.

A change in expectations for future leadership of the Fed also contributed to the higher S&P 500 forecast, Knapp said. The index rose 0.6 percent on Sept. 16 after Larry Summers removed himself as a candidate for Fed chairman.

Citigroup Strategy

Barclays is at least the second bank to raise its S&P 500 estimate during the past week. On Sept. 13, Citigroup Inc. increased its projection for 2013 and said the gauge will jump to 1,900 by the end of 2014, citing rising valuations and investors adding money into mutual funds.

Global equity funds attracted the largest inflows since at least 2005 in the week ended Sept. 18. The funds lured a net $25.9 billion in the period, Wei Liang Chang, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ), said by phone from Singapore today, citing data from EPFR Global. Developed markets posted $24.3 billion of inflows, while emerging-nation funds drew $1.6 billion, according to Chang.

Knapp of Barclays said he’s less optimistic about next year’s equity returns and that the struggle among U.S. lawmakers to agree on a budget may hurt performance. The U.S. House voted today to finance the federal government through mid-December and choke off funding for President Barack Obama’s health-care law, setting up a showdown with the Senate and the White House.

To contact the reporter on this story: Aubrey Pringle in New York at apringle1@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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