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Bank of America Merrill Lynch targets 2,000 S&P 500 in 2014
December 10, 2013, 2:15 PM
As most U.S. equity strategists point out that super-bullish years like 2013 are generally followed up by a year of less-bullish but appreciable gains, Savita Subramanian, equity and quant strategist at Bank of America Merrill Lynch, is being more bullish than most.
Subramanian sees the market in “a sweet spot for equities: low but rising rates, low inflation, and a pickup in economic growth,” and is forecasting a 2014 year-end target for the S&P 500 Index SPX of 2,000, an 11% rise from current levels.
The forecast, part of a wave of 2014 outlooks coming from Wall Street, is one of the more bullish ones out there — a handful of points shy of the high-end “2,014 by the end of 2014″ forecasts from Morgan Stanley and Oppenheimer. But it also is in line with the general call that 2014 will not come close to the 27% bump we’ve seen in the S&P 500 so far in 2013.
Contrary to those who say the market is too bullish, Subramanian says the “wall of worry” persists on Wall Street. B. of A Merrill Lynch’s Sell Side Indicator shows investor optimism is at March 2009 levels, with strategists suggesting a 53% allocation to equities versus the traditional benchmark of 60% to 65%.
While she doesn’t see stocks being overvalued as a whole, factors such as low yields and weak global growth have made valuations expensive for stocks at the extremes. Such stocks include high-yield, no-growth stocks like utilities (even though they’ve been some of the worst performers year-to-date with an 8% gain); or high-growth, no-yield stocks like biotech and social media.
Also, Subramanian sees a bubble in low-beta stocks, where investors have sought higher yields and relative safety. That should start deflating once the Federal Reserve starts tapering its monthly bond buys and rates start rising.
– Wallace Witkowski |
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