Bull Market Has Years Left for Shaoul on S&P 500 Values – Bloomberg 01-06-14

Salient to Investors:

  • Wall Street strategists are the most cautious in almost a decade. The average of 20 estimates predicts the S&P 500 will rise 5.8 percent in 2014 versus the average projection of 11 percent over the last 5 years. The mean estimate is 1,955.
  • 116 S&P stocks are predicted to fall in 2014, the largest number of bearish forecasts in 9 years. The average index stock will rise 4.8 percent, the least optimistic forecast since 2004.
  • S&P 500 earnings will climb 9.7 percent in 2014, almost double 2013, as sales increase 3.8 percent versus 2.2 percent in 2013 and the economy expands 2.6 percent in 2014 versus 1.7 percent in 2013.
  • More than 90 percent of S&P Index stocks and 85 percent of Russell 3000 Index stocks rose in 2013.
  • Since 1936, the S&P has risen 69 percent of the time following quarters when P/E valuations widened.
  • The S&P’s P/E ratio rose in 3 of the 4 quarters in 2013, the first time since 2008.
  • In the 156 quarters since 1936 that the S&P multiple rose, the index itself rose 108 times by an average 3 percent over the next 3 months, versus an average gain of 1.9 percent in all 308 quarters.
  • Bloomberg data show the S&P rose 13 percent in 2010 after 427 companies increased in 2009, 27 percent in 1998 after 402 stocks rose in 1997, and 20 percent in 1996 after 434 stocks rallied in 1995.

Strategas Research Partners said the S&P 500 average return is 14 percent in years where over 400 Index stocks climbed and since 1990, US stocks have never retreated after gains were as widespread in 2013.

Michael Shaoul at Marketfield Asset Mgmt said a sign that things are becoming more popular is they are more expensive and expects the bull market to continue for another 2 to 3 years as nothing happened in 2013 to halt the rally in equities.. “Where we are right now, the fundamentals are good, the earnings are really there and they’re likely to accelerate in a couple of key sectors,” Shaoul said. “There’s risks in this equity market, but they’re largely exogenous.”

Mark Luschini at Janney Montgomery Scott said a lot of the breadth in 2013 was driven by the start of the rotation from bond funds to equity funds, and it is bullish that there is not an exceedingly narrow list of companies driving the market.

ICI and Bloomberg data show equity funds attracted more than $160 billion in 2013, the most since 2000, and versus $80 billion in withdrawals from bond funds.

Brian Belski at BMO Capital Markets said in December that the market is not grossly overvalued but for the rally to continue it must have earnings growth. Belski predicts the S&P 500 will rise 2.8 percent to 1,900 by the end of 2014.

Barry Knapp at Barclays predicts 1900 at year-end 2014 because the market has already accounted for improving earnings.

Tobias Levkovich at Citigroup raised his target to 1,975 in December but says increased volatility may lead to a 10 percent drop during half1.

Tim Hartzell at Sequent Asset Mgmt said 2014 is going to be a thin year in stocks as the Fed has already announced that they are removing the punch bowl, so start trimming stocks and moving into bonds and gold.

Walter Todd at Greenwood Capital said 2013 was really just a return of confidence, and the economy picking up steam bodes well for earnings and multiples, predicting the S&P 500 may climb 10 percent to 15 percent in 2014.

Read the full article at http://www.bloomberg.com/news/2014-01-05/bull-market-has-years-left-for-shaoul-as-s-p-500-valuations-rise.html

Click here to receive free and immediate email alerts of the latest forecasts.

Rising Dividends Help 2014 Market Match U.S. – Bloomberg 12-03-13

Salient to Investors:

Robert Gorman at TD Wealth said:

  • The 3-yr period of sharp underperformance for Canada is coming to a close
  • Dividend stocks will continue to rule but resource stocks will do comparatively better after showing signs of bottoming out.
  • The S&P/TSX Composite Index and the S&P 500 will both return 7 percent in 2014 including dividends, as economies in the US, Europe and China grow.
  • Expansion of US P/E multiples, now at 17 times, is unlikely to continue with the prospect of tapering.
  • Diversified miners producing coking coal and base metals are preferred over gold miners.
  • Energy producers with rising production and free cash flow are attractive, and preferred over oil stocks based on the expectation of a rising commodity price.
  • Stocks with a history of increasing dividends are preferred over stocks with high dividends that trade purely on yield, especially in an improving global economy that suggests a rise in bond yields, like utilities and to some degree any large REITs.
  • This will be the first year of synchronous global growth since the credit crisis and with significant favorable impacts throughout.
  • US and Canadian stock performance will converge.
  • The outlook for economic growth remains below-average.

The Canadian stock market is forecast to improve in 2014 to at least match the performance of the US for the first time since 2010, led by companies raising their dividends. The average economist expects 2014 will be the first year since 2011 when Canada, the US, China and Europe all post positive growth.

The average economist expects the global economy to grow 2.8 percent, the Canadian economy to grow at a 2.3 percent annualized rate, and the US economy to grow 2.6 percent in 2014.

Brian Belski at BMO Capital Markets said current US levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth.

David Madani at Capital Economics said the better-than-forecast 2.7 percent growth in Canada’s Q3 showed continued weakness in exports and “one-off” rebounds in business spending following a flood in Alberta and the end of a labor strike in Quebec.

Ian Nakamoto at MacDougall MacDougall & MacTier, said Canada and other commodities-based markets will stay out of favor with investors until global growth accelerates past 4 percent as equity investors continue to believe commodities will not do much or go down, not up. Nakamoto said countries that consume commodities have been in favor and does not see that changing, and sees no broad-based uplift in Canada.

Read the full article at http://www.bloomberg.com/news/2013-12-03/rising-dividends-help-2014-market-match-u-s-.html

Click here to receive free and immediate email alerts of the latest forecasts.

Bulls Corralled as April Losses History Seen Jolting Rally – Bloomberg 04-08-13

Salient to Investors:

Russ Koesterich of BlackRock sees an increased risk of a correction and the best performing sector the defensives are very expensive – this is a very different rally than what people are used to. Koesterich sold smaller companies on concern the US economy is not expanding fast enough.

Valentijn Van Nieuwenhuijzen at ING Investment Mgmt says risks are rising and is not making new share purchases.

Jim Russell at US Bank Wealth Mgmt said the strength and breadth of the equities market surprised most investors in Q1 as pensions and other funds owned too few shares in November. Russell is selling US equities and buying bonds expecting a pullback soon.

Chad Morganlander at Stifel Nicolaus is very cautious because of the absence of the self-sustaining lift needed to go from 1,550 to 1,750, and is 18 percent in cash and buying bonds.

The median economist expects the economy to grow 1.9 percent in 2013 and earnings to lose 1.8 percent in Q1 2013 versus a gain of 1.2 percent predicted at the start of the year.

John Stoltzfus at Oppenheimer said higher p/e ratios for defensive stocks are no reason for the rally to fizzle and may reflect conservative investing by individuals returning to the equity market for the first time since 2007. Stoltzfus said the real improvement in fundamentals is driving stocks higher and sees the S&P 500 at 1,585 by year-end.

Defensive industries are at a 26 percent valuation premium to the rest of the market. Consumer staples in the S&P 500 trade at 18.1 times earnings, Utilities at 17 times, and health-care at its highest p/e since February 2008.

Jonathan Golub at UBS said valuations signal danger after investors withdrew more than $400 billion from US stock mutual funds between 2009 and 2012. ICI said funds had $18.4 billion inflows in January and $1.1 billion in February and in March. Golub said a defensive-led market is not positive for a continued rally and sees the S&P 500 falling 8.3 percent to 1,425 by year-end. The average year-end strategist expects 1,583.

Brian Belski at BMO Capital Markets said this year is strikingly similar to the last three years with investors bracing for losses, and expects the S&P 500 to end 2013 at 1575 as earnings continue to expand.

The S&P 500 is at 15.3 times trailing earnings.

David Joy at Ameriprise Financial said there’s no question the cyclicals are cheaper but when do they take over the leadership? Joy would not be terribly aggressive.

Read the full article at http://www.bloomberg.com/news/2013-04-07/bulls-corralled-by-april-history-as-drug-valuations-at-2008-high.html

Click here to receive free and immediate email alerts of the latest forecasts.

Dow Average Rises to Record as Jobless Claims Decline – Bloomberg 03-07-13

Salient to Investors:

Robert Lutts at Cabot Money Mgmt the underlying support for the labor market is driven by housing and potentially construction finally returning. Lutts said QE and lower interest rates are finally having an impact as signalled by the stock market.

Troy Logan at Warren Financial Service said employment has stabilized – key is that high unemployment and underemployment is not getting worse.

Brian Belski at BMO Capital Markets said people are still in the bunker and not really believing the market yet – when they realize they’re losing money for several months in a row, they’ll see the positive returns in stocks and return.

Read the full article at http://www.bloomberg.com/news/2013-03-07/u-s-stock-futures-little-changed-before-jobless-report.html

Free email alerts of articles as soon as they are posted.

Trio of Strategists Agree S&P 500 to Reach Record in 2013 – Bloomberg 09-14-12

Salient to Investors:

Tobias Levkovich at Citigroup predicts the S&P 500 will hit 1,615 in 2013.

Brian Belski at Bank of Montreal predicts the S&P 500 to hit 1,575  in 2013.

Savita Subramanian at Bank of America expects the S&P 500 to hit  1,600, but straight up, in 2013 on record earnings, reduced concerns about the global economy, and high bearishness on Wall Street. Subramanian said economic growth could disappoint in half2 2012 and early 2013, adding to recession in Europe and decelerating trends in emerging markets.

Abby Joseph Cohen at Goldman Sachs said investors risk tolerance is improving but still not back to normal.

The S&P 500 companies have posted 11 quarters of earnings expansion.

11 of 12 analysts surveyed expect S&P 500 earnings above $100 a share in 2013

Charles Bobrinskoy at Ariel Investments said people like the idea of a Fed put, the idea the Fed will stand behind the economy and step in to intervene.

Hayes Miller at Baring Asset Mgmt says equity gains have gone too far too fast, and stocks will fall once investors realize profit margins have peaked and the Fed’s stimulus has driven most of the rally. Miller said QE3 is more artificial stimulation that kicks the can further down the road – we still have to work through excess debt that needs to be restructured, the fiscal cliff, and the fact that we have been on peak profits.

US stock mutual funds posted net outflows for a fifth year through 2011, the longest streak in data going back to 1984. Withdrawals have exceeded $80 billion this year.

Andrew Slimmon at Morgan Stanley Smith Barney sees capitulation buying by many investors with too much cash.

Read the full article at http://www.bloomberg.com/news/2012-09-15/trio-of-strategists-agree-s-p-500-to-reach-record-in-2013.html