Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co., estimated the Standard & Poor’s 500 Index will rally to 1,430 next year and recommended financial stocks.
Lee’s forecast is 14 percent higher than the closing level on Dec. 9 of 1,255.19. He estimated combined profit by companies in the benchmark equity gauge will be $105 a share in 2012 and $110 in 2013. Based on his projection for earnings in 2013, the S&P 500 will trade at a price-earnings multiple of 13 times, according to a note dated Dec. 9.
“The consensus view is that visibility remains murky and with significant tail risks” such as Europe’s debt crisis and fiscal tightening in China, Lee said. “2012 may look a bit like 2009,” he wrote. “Emergence from a financial crisis and the potential for acceleration of the business cycle driven by Europe exiting a recession and China easing” may boost cyclical stocks. Financials, which may be helped by Republican gains in the U.S. election, are his “top pick,” he said.
Financials have plunged 21 percent in 2011, the most of the 10 groups in the S&P 500, as investors fled banks and insurers on concern Europe’s debt crisis will spread. Material and industrial shares had the next biggest declines, falling 13 percent and 5 percent, respectively. In 2009, from the S&P 500’s bottom on March 9, 2009, through the end of the year, financials surged 131 percent, while consumer discretionary, industrials and materials jumped at least 83 percent.
Lee’s S&P 500 estimate is the second-highest of 11 strategists surveyed by Bloomberg, who on average forecast the measure will climb to 1,350 next year.
The S&P 500 fell 1.5 percent to 1,236.47 at 4 p.m. New York time. The measure has lost 1.7 percent in 2011.