Monday, December 13, 2010

No New Normal Strategists Next Year Seen by 11% Gain in Predicting S & P 500

The increase in profits and cash balances boost the Standard & Poor's 500 for the biggest gain in three years from the decade of 1990, above expectations of return below the average, the strategists of the biggest banks on Wall Street say .

The benchmark for U.S. equities increased 11 percent to 1,379 in 2011, bringing the increase since 2008 to 53 percent, the best performance from 1997 to 2000, according to the average of 11 strategists surveyed by us. Goldman Sachs Group Inc. 's David Kostin, U.S. strategist more accurate this year, said sales growth will spur a 17 percent rally in the S & P 500 in late 2011.

Market analysts say that revenues reached record levels, keeping valuations below historic averages in the same time government spending helps the economy. Reaching their average forecast for 2011 earnings would give the annual rate of 15 percent in three years, double the expected rate for Pacific Investment Management Co. 's new normal theory expected deficit and increased regulation will limit returns.

"The new normal can not be so new," said Barry Knapp, the head of New York of equity strategy at Barclays Plc, which expects the S & P 500 will come to 1,420. "There is nothing to worry about the profits. Let's get some margin expansion, and we're still at a very good in the economic cycle. From my point of view, I tried to think of all the risks. I think prospects are favorable, so favorable that I struggle to see how the equity market does not perform well. "

Tax Breaks

Stocks rallied last week, pushing the S & P 500 index by 1.3 percent to nearly 27-month high of 1,240.40, after President Barack Obama said he would agree to a two-year extension of tax cuts adopted under his predecessor, George W. Bush. The index has gained 11 percent this year.

Futures on the benchmark due in March were little changed at 1235.7 at 8:19 today in London.

A December 10 report showed that consumer confidence rose to U.S. a maximum of six months and the trade deficit narrowed more than economists estimated that exports grew at the highest level since 2008.

Balance sheets of companies have never been stronger, "Kostin said, citing data from Goldman Sachs, which shows the companies have more than 1 billion dollars in cash, the most in comparison with the value of their assets. "We expect the S & P 500 companies will increase spending in all categories, with the fastest growth in acquisitions and share repurchases."

Hiring Slump

Shares rose on December 9 when Mohamed El-Erian, chief executive and chief investment officer of Pimco co-chair, raised its forecast for growth next year in the U.S., while regulators spend up to $ 600 million to buy bonds Treasury through so-called quantitative easing. Pimco said the economy to grow by 3.5 percent in the fourth quarter of 2011 from the same period last year, compared to 2.5 percent.

Pimco bond fund manager of the world's largest, said that since May 2009 that the proceeds of financial assets are lower than historical averages in the coming years. Bill Gross, chief investment officer of other co-chairman, said on 3 December, a Labor Department report showing forecast hiring disadvantaged in November shows gross domestic product is not expanding fast enough to hold meetings market.

'Alas stable'

"The normal age was 6-7 percent," Gross said in a radio interview on December 3 "The new normal is 3 percent of nominal GDP or less. Speaks of an increase of 2 percent and 1 percent inflation. We are staying in a media type paper airplane size of the economy rather than a steady winged and full thrust of the reactors. "

Federal Reserve chairman, Ben S. Bernanke said in an interview broadcast on December 05, s of CBS Corp. "60 Minutes" program that the economy barely expands to a more sustainable pace and that may increase bond purchases. China, the world's fastest growing economy, said this month he is moving to a more "prudent" monetary policy to counter inflation.

Kostin, strategist at New York, Goldman Sachs, which said last year the S & P 500, the end of 2010 to 1250, wrote in a note of 06 December that bond yields below the average help create an "unbeatable backdrop" for equities. It is expected that the S & P 500 until the end of 2011 to 1450, the so-called second biggest gain of the 11 companies surveyed. Total earnings per share between the companies in the index may rise to $ 94 next year, he said.

The profit forecast would be a record and compared with an average forecast of $ 92 per share in the survey of strategists. Index operations at 13.5 times the estimate, compared with an average price-earnings of 16.4 since 1956.

Improved performance

The S & P 500 earnings yield or annual profit divided by share price, was 6.45 percent at the end of last week. That was 3.13 percentage points more than the payment of Treasury debt to 10 years and about 2.4 points higher than the average interest of U.S. corporate bonds, as measured by Barclays Plc. The spread between S & P 500 and corporate bond yields are near the highest level in more than two decades.

This suggests that stocks are cheap in relation to the obligations and may encourage investment by individuals, institutions and enterprises in 2011, Kostin said.

Over 70 percent of companies beat analysts' estimates of profits in the third quarter. This was the sixth consecutive rate many projections, the longest streak since at least 1993.

Jonathan Golub of UBS AG in New York expected to increase 6.8 percent to 1,325 in the S & P 500 through 2011, driven by sales growth of up to 7 percent. Next year is "Well, with the possibility of large" for stocks, said in an interview. "You really get a good base on earnings alone. We are entering a self-sustained recovery," and is "a very accommodative backdrop is provided by the Fed," he said.

Acquisitions, repurchases

Cash register means that companies can increase mergers, acquisitions and share repurchases, "said Golub. Repurchase amount to $ 375 million later this year, the annual total of the fourth highest since at least 1985, if they continue at current rates, according to Birinyi Associates Inc.

Hewlett-Packard Co., which has $ 10.9 billion in cash and equivalents, repurchase plans, CFO Cathie Lesjak said Dec. 8 at an investor conference in San Francisco. The Palo Alto, personal computer maker based in California added $ 10 billion in August to 4.9 billion U.S. dollars and are available for repurchase.

Schlumberger Ltd., the largest provider of oilfield services, is considering buying back some of the 176 million shares this year after an acquisition, CEO Andrew Gould said in a press conference on October 22.

Judge Value

Golub said the proceeds of valuations based on earnings estimates for 2011 are the best way to judge the value and show the prices have been depressed by an overly pessimistic about the economy. UBS plans for the S & P 500 in 2010 one year matched Goldman Sachs in 1250.

"Is the market discounting the weakest growth rates? You have a multiple that is so substantially below normal, it seems that this is the case," said Golub. "But as the economy continues to surprise to the upside, there is a process whereby the market begins to discount more successful. I'm not asking for a year in reduced performance."

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