S&P 500 May Surge to 1,350, Bianco Says: Tom Keene

(Corrects forecast of Chinese contribution to profits in the second to last paragraph.)

June 14 (Bloomberg) -- The Standard & Poor’s 500 Index will rally as much as 23 percent to 1,350 over the next 12 months, propelled by corporate profit growth, according to David Bianco, head of U.S. equity strategy at Bank of America Merrill Lynch.

The equity gauge will climb as high as 1,200 in the second quarter and trade in a range of 1,050 to 1,300 through the end of the year, he said in a radio interview with Tom Keene on “Bloomberg Surveillance.” Bianco said other analysts are too pessimistic in forecasting the S&P won’t match its record high of 1,565.15, reached in October 2007, in the next several years.

“Many investors think we won’t see that high for another decade or so, and I think that’s incorrect -- we will see those highs and higher within the next handful of years,” said Bianco, based in New York. “What we see is corporate profit growth in a very low-inflation, low-interest-rate environment.”

The Federal Reserve will keep its target rate at a record low until August 2011, and yields on U.S. 10-year Treasuries will remain at or below 5 percent for the next two to three years, according to Bianco.

The S&P 500 climbed for a third day, increasing 1 percent to 1,102.71 at 12:23 p.m. in New York. The yield on 10-year Treasury note advanced 0.08 percentage point to 3.31 percent.

The S&P 500 will benefit from profit growth in businesses in emerging markets, Bianco said. China’s companies, which now account for 5 percent of profits on the S&P, will contribute 10 percent by 2015, he said.

Analysts have raised their average 2010 earnings growth forecasts for the S&P 500 to 32 percent from 26 percent at the end of March, according to data compiled by Bloomberg.

To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net