Most Pessimistic Strategist Says He Was Too Bearish
Parker, the New York-based U.S. equity strategist at Morgan Stanley, has predicted since the beginning of 2012 that the benchmark index for American stocks would sink 7.2 percent to end the year at 1,167, the lowest among strategists polled by Bloomberg. The S&P 500 recently traded at 1,426, poised for the biggest annual gain since 2009.
Stocks climbed this year as the European Central Bank announced an unlimited bond-buying program and the Federal Reserve introduced a third round of asset purchases to stimulate economic growth while pledging to keep its target interest rates near zero through at least mid-2015.
“We were wrong on our year-end outlook for 2012 mostly because of our view on the multiple, but also because we didn’t view the bull case as being more probable than the bear case,” Parker wrote in a note today. “The specter of nearly unlimited intervention from the ECB and the Fed seems to have created a more positive asymmetry than we anticipated a year ago.”
Parker said “a more balanced bull-bear ratio seems appropriate” when making forecasts for 2013. While he hasn’t made a price projection for the S&P 500, he expects companies in the index to earn $98.71 a share next year. That’s lower than the average forecast of $106.27 from strategists in a Bloomberg survey.
Wall Street strategists so far are unanimous in predicting the S&P 500 will reach a record next year, according to the five firms that have made predictions out of 15 tracked by Bloomberg. Goldman Sachs Group Inc.’s David Kostin and Bank of Montreal’s Brian Belski expect the S&P 500 will climb to 1,575 in 2013. That compared with predictions of 1,600 by Bank of America Corp.’s Savita Subramanian, 1,615 by Tobias Levkovich at Citigroup Inc. and 1,585 by Oppenheimer & Co.’s John Stoltzfus.
The S&P 500 needs to increase 9.2 percent from last week’s close to reach its all-time high of 1,565.15 set Oct. 9, 2007.
Per-share profits have exceeded analysts’ estimates at about 69 percent of the 123 companies in the S&P 500 that released results for the third quarter, according to data compiled by Bloomberg. Earnings have increased 0.9 percent for the group on a 1.9 percent gain in sales.
The S&P 500 is trading at 14.4 times reported earnings over the past 12 months, up from 13.7 at the end of 2011 and compared with an average income multiple of 16.4 over the last five decades, based on data tracked by Bloomberg.
“We are still deeply worried about the structural issues facing the U.S., but the market has not been anticipatory,” Parker said. “Investing predicated on a sustained level of investor complacency is worrisome, but potentially apropos.”
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