The bull market in American equities is intact and the Standard & Poor’s 500 Index will probably reach 1,380 within the next few months and rally from there, according to Laszlo Birinyi.
Birinyi, president of research and money-management firm Birinyi Associates Inc. in Westport, Connecticut, said concern about second-quarter earnings are overblown and too many investors are worried about a “worst-case” outcome for stocks. About 71 percent of the 216 companies in the S&P 500 that have reported results have exceeded analysts’ profit estimates, according to data compiled by Bloomberg.
“It will be, as it has been, a case of three steps forward, two backward and trends lasting one day or five hours,” wrote Birinyi in a note to clients. The former Salomon Brothers Inc. equity trader, who described his forecast as “1,380 later this summer, and then higher,” said in the note: “Despite the frustrations of July with its volatility and curious price activity, we remain optimistic.”
Birinyi was among the first to suggest buying stocks as the U.S. equity market reached its bear market bottom in March 2009. He stayed bullish when the S&P 500 declined as much as 16 percent in 2010 and through last year’s tumble to 1,099.23 on Oct. 3 from 1,363.61 on April 29. The fund manager predicted in May the S&P 500 will reach 1,500 in 2012, up 12 percent from its current level.
Equities in the benchmark gauge for American shares have lost 1.8 percent in July. They slipped 2 percent from the end of June to July 12, climbed 3.1 percent to 1,376.51 on July 19, and have retreated 2.8 percent since then to 1,337.89 yesterday.
Stock markets advanced 7 percent on average during the third quartile of three of the last five bull markets, according to Birinyi. That would mean the S&P 500 will climb to 1,380, or a 3.1 percent advance from yesterday’s close, by September, Jeffrey Yale Rubin, an analyst at Birinyi, said in a telephone interview yesterday.
Should the market track the other two rallies, the S&P 500 could reach 1,700 in a year or two, Rubin said, citing the firm’s March report.
Birinyi said he sold shares of Ralph Lauren Corp. from the firm’s model fund for growth investors, while adding PepsiCo Inc., according to the note. The New York-based clothes retailer has dropped 20 percent to $143.08 a share from its March high this year. PepsiCo, the world’s largest snack-food maker, has increased 13 percent to $70.30 from its low in March of $62.28.
“The U.S. economy continues to sputter, Europe is in disarray and China remains a question mark, but even with all that, the market is up almost 7 percent” in 2012, Birinyi wrote in the note. “With a touch of dividends, that translates into an annualized gain approximating 15 percent.”