Blackstone’s Byron Wien Says S&P 500 May Rally to Record in 2011
The Standard & Poor’s 500 Index may rise at least 28 percent through next year to a record as corporate profits and the economy improve, according to Byron Wien, the vice chairman of Blackstone Advisory Services.
In January, Wien wrote in his annual “Ten Surprises” list of predictions that the S&P 500 would finish 2010 unchanged at 1,115.10. It has gained 9.7 percent this year through yesterday. The index will extend the advance into 2011 and may reach its all-time high of 1,565.15 from October 2007, Wien said.
That “isn’t crazy,” Wien, 77, said in a telephone interview from New York. “It’s certainly possible. Things are improving. You’ll have earnings over $90 a share for 2011. As people become comfortable with the fact that calamity is not in store, they will be willing to take more risk.”
The S&P 500, which closed at 1,223.75 yesterday, near its two-year high of 1,225.85 reached Nov. 5, rose 20 percent from this year’s low in July amid improving corporate earnings and the Federal Reserve’s plan to pump more money into the economy to stimulate growth. More than 70 percent of S&P 500 companies beat the average analyst profit estimate for the sixth straight quarter.
Strategists surveyed by Bloomberg have a median estimate of $91 in earnings per share for S&P 500 companies next year, compared with than the $84 projected for 2010. They see the S&P 500 rallying to 1,325 by the end of 2011, according to the median projection. Forecasts range from 1,200 to 1,550.
Profit Margin Expansion
Wien, the former chief U.S. strategist for Morgan Stanley, said gross domestic product growth will exceed economists’ projections for next year. The U.S. economy, which contracted 2.6 percent in 2009, is expected to grow 2.7 percent this year and 2.5 percent in 2011, according to the median forecast of 63 economists surveyed by Bloomberg. In January, Wien forecast that GDP would expand 5 percent this year.
“I was optimistic about 2010 and the economy did not turn out that well,” he said. “The economy is improving. There are more favorable signs on the economy than unfavorable ones.”
The S&P 500 advanced 3 percent last week after a record increase in sales of existing homes, retail sales that topped projections and reports showing an expansion in Chinese and European manufacturing. Stocks pared gains on Dec. 3 after government data showed that the jobless rate advanced to the highest since April last month, rising to 9.8 percent.
“I view that report as an aberration,” Wien said about the November unemployment data. “I’m not willing to say that’s the beginning of a new upward trend. The figures next month might be more favorable.”
As the economy improves, Wien says economically sensitive companies, especially those in technology, commodities and industrial, and companies that rely on consumer discretionary spending, should benefit.
Wien also said investors should invest 10 percent of their assets in large, multinational companies in developed markets. In his December 2010 “Market Commentary”, he said Coca-Cola Co., General Electric Co., Unilever NV and Siemens AG have “great products, strong brands and promising prospects.”
The strategist, who said in January that financial-services stocks would beat the market, is less optimistic on the industry’s prospects in 2011. The KBW Bank Index has risen 12 percent so far this year, outpacing the S&P 500.
‘Neutral’ on Financials
“I’m sort of neutral on them,” Wien said. “There’s some good news, their earnings are improving. On the other hand, conforming to the new regulatory requirements in Basel III will hamper profitability.”
Wien, who correctly predicted rallies in equities, gold and oil last year, called the recession in 2001. With the Fed’s benchmark rate at a 10-year high of 6.5 percent, he predicted a series of interest rate cuts that began with a surprise reduction by the central bank on Jan. 3, 2001.
He was less prescient during previous bull markets, saying the Dow Jones Industrial Average would fall in 1997 and 1998. The gauge rose 23 percent in 1997 and 16 percent a year later.
On Nov. 3, the Fed said it will buy an additional $600 billion of Treasuries in a second round of so-called quantitative easing, and Wien said there could be more to come.
“They will keep on easing,” he said. “That’s the only tool left to them right now. They can’t have any fiscal stimulus. They will never get that through. There would be more of quantitative easing if the unemployment rate is persistently rising. Hopefully, that won’t be the case. I’m not sure QE2 or QE3 would do that much good.”
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