The Standard & Poor’s 500 Index likely will rally by almost 10 percent by the end of next year as the economy improves and corporate earnings rise further, Robert Doll, vice chairman of BlackRock Inc. in New York, said.
“We haven’t come up with an official target but it’s probably going to be in the neighborhood of 1,350” for the stock market index at the end of 2011, said Doll in an interview. The benchmark gauge for U.S. equities closed yesterday at 1,235.23, just below a two-year high.
Doll’s forecast compares with predictions by 11 stock market strategists tracked by Bloomberg News who on average see the S&P 500 rising to 1,370 in 2011. He sees per-share earnings at companies in the index rising to between $93 and $95 in 2011, compared with an average estimate of $92 a share.
The S&P 500 has risen 11 percent so far this year through yesterday as corporate earnings exceeded estimates, economic data improved and the Federal Reserve purchased Treasuries to boost growth. Earnings per share for companies in the benchmark gauge for U.S. stocks are forecast to be $85.41 this year, according to data compiled by Bloomberg.
Doll, whose firm manages about $3.4 trillion, doesn’t think rising bond yields will hurt stocks. The yield on the 30-year Treasury bond rose to 4.59 percent yesterday, its highest level since April.
“Even with the rise in rates, there’s still a pretty big valuation gap between stocks and bonds in favor of stocks,” Doll said. “The risk is that we do get some multiple expansion, and if we do, 1,350 is too low a target” for the S&P 500. Bond yields are increasing because the economy is strengthening, he added.
The economy will expand about 3 percent next year, according to Doll. That’s in line with the 3.2 percent rise in gross domestic product in the year through the third quarter. The growth will be “much higher quality” next year, he said, because “there will be a lot more final demand and a lot less inventory build and fiscal stimulus."