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Garthwaite Lifts S&P 500 2012 Forecast to 1,400 on Europe

Credit Suisse Group AG’s Andrew Garthwaite lifted his 2012 forecast for the Standard & Poor’s 500 Index to 1,400, citing the European Central Bank’s refinancing plans for banks as a “potential game changer.”

Garthwaite, the London-based global equity strategist at the firm, had previously estimated the benchmark gauge for U.S. equities would climb to 1,340 at the end of 2012. His new forecast, which would be a 6.5 percent rise from the index’s close today, pushes the average projection of 12 strategists surveyed by Bloomberg to 1,349.

The S&P 500 fell as much as 19 percent in 2011 amid concerns the sovereign debt crisis in Europe would trigger a global recession. ECB President Mario Draghi last month unveiled plans to offer banks 36-month, 1 percent loans through two so-called longer-term refinancing operations, known as LTROs. The loans have prevented a “serious” bank funding crisis, he said today.

“A lot has changed since early December,” Garthwaite wrote in a note dated today. “The significance of the ECB’s three-year LTRO is not yet fully understood. This is increasing base money supply, potentially by an exceptionally large amount.”

The S&P 500 has rallied 4.5 percent this year, the best start since 1997. The measure has climbed 20 percent from its 2011 low of 1,099.23. The gauge advanced 0.5 percent to 1,314.50 today.

Economic Data

Garthwaite also said equities will continue to rebound on improvement in the U.S. economic data, the steps in China to ease monetary policy, the low discount rate and the cheaper valuations of equities relative to bonds. He didn’t recommend stocks at “overweight,” citing risks to U.S. growth momentum, as well as global macro factors such as China’s housing market and Europe’s potential recession.

Initial jobless claims in the U.S. fell to the lowest rate since April 2008 last week, the Department of Labor said today. U.S. industrial production rebounded in December, rising 0.4 percent, figures from the Federal Reserve showed yesterday in Washington.

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