There is a more than 50 percent chance the Standard & Poor 500 Index will top 1,600 this year as investors pour money into equity mutual funds and corporate profits beat estimates, according to Laszlo Birinyi, president of Birinyi Associates Inc.
The U.S. equity benchmark would have to rise 6.7 percent to reach that level, exceeding its previous record of 1,565.15. Birinyi, among the first to advise buying U.S. stocks before the bull market began in 2009, purchased an unspecified amount of $160 calls on the SPDR S&P 500 ETF Trust that expire in December, he said in a report to clients.
“We are positive,” Birinyi said in the report. “There has been a reversal in the public’s attitude as they have begun to buy mutual funds instead of sell them.”
About $22 billion flowed into stock funds around the world in the week ended Jan. 9, the second-highest rate on record, according to data compiled by research firm EPFR Global going back to 1996. The S&P 500 has risen 5.1 percent this month, poised for the best start to a year since 1997. The index has more than doubled from a 12-year low in 2009 as the Federal Reserve increased bond purchases to keep interest rates low and spur growth.
The U.S. equity benchmark is about 4 percent below its record of 1,565.15 set in October 2007, while the Dow is less than 2 percent from its all-time high.
Birinyi also cited strength in the U.S. economy and housing market as reasons for being bullish. The S&P/Case-Shiller index of property values increased 5.5 percent in November, the biggest year-over-year gain since August 2006, according to data released Jan. 29.
Investors should consider buying stocks related to homebuilding, including Whirlpool Corp., the world’s largest appliance maker, Birinyi said during a Bloomberg Television interview today. The shares will rally this year, even after they more than doubled in 2012, he said. An S&P gauge of 11 builders surged 84 percent last year.
“Those stocks still, quite frankly, despite their gains, look good,” Birinyi said today.
Gains will not be “straight up or easy,” Birinyi said, citing concerns about Apple Inc.’s last profit report. Shares of the world’s most valuable company dropped 12 percent last week after it posted the slowest profit growth since 2003.