Goldman Sachs, Morgan Stanley Raise S&P 500 ForecastsInyoung Hwang
The two biggest U.S. equity bears in 2012 see the Standard & Poor’s 500 Index rising more than 12 percent this year to at least 1,600, as strong economic data point to higher corporate earnings.
Goldman Sachs Group Inc.’s chief U.S. equity strategist, David Kostin, raised his target today for the benchmark stocks gauge by 3.2 percent to 1,625 from 1,575. Adam Parker of Morgan Stanley boosted his 2013 estimate by 12 percent to 1,600 from 1,434. They join strategists at Deutsche Bank AG, Credit Suisse Group AG and Jefferies Group LLC in increasing their targets for U.S stocks in the last week.
“The 2013 U.S. equity market story is becoming one of improving business activity accompanied by increased CEO confidence,” Kostin wrote in a report. “Recent economic data has been strong as employment growth, ISM surveys and retail sales have all posted positive surprises. The ‘sequester’ has begun, and the federal government is still functioning.”
The rally in U.S. equities has pushed bearish strategists to capitulate in 2013 after being conservative last year, when stock seers forecast the smallest gain in seven years for the S&P 500. Kostin and Parker estimated the S&P 500 would fall in 2012 to 1,250 and 1,167, respectively, making them the two most bearish strategists among the 14 surveyed by Bloomberg. The equity index surged 13 percent to 1,426.19 in 2012.
The S&P 500 closed within two points of its all-time record of 1,565.15 on March 14, as better-than-estimated retail sales and jobless claims data boosted optimism in the world’s largest economy. The data helped offset concerns over automatic federal spending cuts that started March 1.
On March 5, the Institute for Supply Management’s non-manufacturing index reading for February unexpectedly increased. A week earlier, ISM factory data showed the fastest pace of manufacturing since June 2011, as orders climbed the most in almost two years.
The S&P 500 has surged 21 percent since its low last year in June amid corporate earnings that have exceeded analysts’ estimates and stimulus measures by global central banks. The gauge has added 8.8 percent this year. It slid 0.6 percent to 1,552.10 in New York today and would need to add 3.1 percent to reach 1,600.
Following the latest upward revisions, the average strategist forecast for the S&P 500 at the end of 2013 is 1,571, data compiled by Bloomberg show. The figure has risen 2.3 percent since starting the year at 1,534.
Kostin, the New York-based chief U.S. equity strategist at Goldman, lifted his estimate for combined earnings by companies in the S&P 500 this year by $1 to $108 a share. Goldman expects U.S. economic growth to reach 3 percent in the first quarter and 2 percent in the second three months of the year, he said.
He also said financials stocks should outperform those from other industries in 2013, citing faster economic growth, rising interest rates and higher dividends and share buybacks.
Morgan’s Parker, who is based in New York, increased his projection for S&P 500 profit to $103.20 from $98.71.
“We see improving fundamentals in the second half of the year and into next year,” Parker said in today’s note. “A number of things have been responsible for the recent multiple expansion, but perhaps a major contributor was quantitative easing, which encompasses Fed and ECB policy.”
Jefferies’ Sean Darby increased his target by 6.9 percent to 1,673 on March 12, making him the most bullish strategist in Bloomberg’s survey. The Hong Kong-based chief global equity strategist said earnings will continue to surpass estimates and investors will shift money to stocks from bonds.
Credit Suisse’s Andrew Garthwaite raised his target to 1,640 from 1,550, the second-highest in the survey. More aggressive central bank actions and inflows into equities were among the reasons the S&P 500 warranted a higher forecast, he said in a March 15 note.
David Bianco, Deutsche Bank’s New York-based chief U.S. equity strategist, raised his 2013 target to 1,625 from 1,600, citing positive economic data in a March 16 note.
Wells Fargo & Co.’s Gina Martin Adams is the most bearish strategist, projecting the S&P 500 will fall to 1,390. That would require a 10 percent drop from today’s level.