GAFM Expert Opinion

Drop Bonds to Favor Stocks ?

By Michael Preiss

Tuesday, July 21, 2009 22:01:57 PM

[b]For information only:[/b]
 
 
In a ratings change, our friends over at Credit Suisse Group AG advised investors to:
 
 
·   trim their holdings in government bonds and  BUY equities, reversing a recommendation from June.
 
·   Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,”
             according to London-based global strategist Andrew Garthwaite.
 
·    Valuations on equities are “not expensive” and consensus estimates for earnings in the U.S. are now being increased,
            something which precedes a rising stock market in the subsequent two to three months, Garthwaite wrote.
 
 
[b]By Adam Haigh and Jeff Kearns[/b]

July 21 (Bloomberg) -- Credit Suisse Group AG advised investors to trim their holdings in government bonds and buy
equities, reversing a recommendation from June. Credit Suisse raised its estimate for the Standard & Poor’s 500 Index by 14 percent to 1,050 by the end of the year, citing improving economic indicators and earnings. Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” according to London-based global strategist Andrew Garthwaite. The VIX and investment-grade corporate bond spreads have
returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told
clients in a note today.

The S&P 500 has climbed 5.7 percent this year, recovering after a 25 percent plunge through March 9, as better-than-
expected corporate profits and signs that the world’s largest economy is stabilizing spurred the biggest rally since the
1930s. The U.S. stock benchmark climbed 0.4 percent today to 954.58, the highest Nov. 4.

Valuations on equities are “not expensive” and consensus estimates for earnings in the U.S. are now being increased,
something which precedes a rising stock market in the subsequent two to three months, Garthwaite wrote.
 
[b]Economic Recovery[/b]
 
“Bonds no longer look attractive,” he wrote. We expect “a positive macro surprise in the second half of the year. We
believe that we are halfway through the first ‘V’ of an upward sloping W-shaped recovery, with a likely peak in the early
fourth quarter.”

A Merrill Lynch & Co. index of G-7 government bonds yielded 2.08 percent as of yesterday, compared with an average over the past five years of 2.90 percent. The yield was as high as 2.33 percent this year on June 11. Garthwaite also cited the drop in the Chicago Board Options Exchange Volatility Index, or VIX, to its level before the September collapse of Lehman Brothers Holdings Inc. as an example of investor sentiment returning to “normal.” The benchmark for U.S. stock options is down 40 percent this year.

On June 29 it fell below the Sept. 12 close of 25.66, the last session before Lehman filed for the biggest bankruptcy in U.S. history. The VIX surged to a record 80.85 in November. Goldman Sachs Group Inc.’s David Kostin yesterday increased his estimate for the S&P 500 index, saying the benchmark for U.S. equities will advance 15 percent from its June 30 level to 1,060 on Dec. 31, an increase from his prior projection of 940.

JPMorgan Chase & Co. equity strategist Thomas Lee, the most bullish of 10 Wall Street strategists followed by Bloomberg News, said in a report yesterday that analysts have been slow to boost estimates out of concern that the recession will linger. That’s similar to what happened during the 2002 stock market recovery, he said. Lee, who has maintained his annual S&P 500 forecast of 1,100 all year, recommends investors favor small companies and businesses that can grow profits the most as the economy expands.

 
--With assistance from Roger Neill in London and Elizabeth
Stanton in New York. Editor: Jason Carey, Stephen Kleege
 
[b]To contact the reporters on this story:[/b]
Adam Haigh in London at +44-20-7073-3433 or
ahaigh1@bloomberg.net.
Jeff Kearns in New York at +1-212-617-8138 or
jkearns3@bloomberg.net.
 
[b]To contact the editor responsible for this story:[/b]
Nick Baker at +1-212-617-5919 or nbaker7@bloomberg.net.

S&P 500 forecasts raised:Wall Street consensus view now at..

By Michael Preiss

Monday, July 20, 2009 21:55:38 PM

For information only:

S&P500 current level: 951.13

Several of our friends on Wall Street have RAISED their target prices

Average Wall Street strategist year-end S&P500 forecast: 997 implying an upside of +4.84% from current levels.

Wall Street Strategists’ Year-end targets:

JP Morgan's Lee: 1,100 +15.7%

Goldman's Kostin: 1,060 +11.5%

Deutsche Bank' Chadha: 1,000 +5.2%

Barclay's Knapp: 930 -2.2%

HSBC's Gardiner: 900 -5.4%

Morgan Stanley's Todd: 900 -5.4%


David Kostin, who replaced Abby Cohen who was deemed or at least seen as “paid to be bullish” when she exclaimed that at 12,000 levels in the Dow , US stocks offered great value. Please do not forget, that at the same time, Mr. Bernanke appeared on LIVE tv in a capital hill hearing, proclaiming that: Subprime will be contained. So perhaps she took the view from the Central Bank.

David Kostin who succeeded Cohen as Chief US Investment Strategist, in his defensive turned much more bearish last year and seemed to got it right. Yesterday Mr. Kostin and his team at Goldman raised their forecast for the S&P to become the 2nd most bullish strategist on Wall Street. Raising their S&P500 target from by +12.8% from 940 to 1,060.


S&P 500 to Rally Most Since 1982, Goldman Sachs Says (Update4)

2009-07-20

By Sarah Jones and Lynn Thomasson

July 20 (Bloomberg) -- Goldman Sachs Group Inc. boosted its

forecast for the Standard & Poor 500 Index, saying improving

earnings will spur the steepest second-half rally since 1982.

The benchmark index for U.S. stocks will advance 15 percent

from its June 30 level to 1,060 on Dec. 31, an increase from

David Kostin’s prior projection of 940. The chief U.S.

investment strategist at New York-based Goldman Sachs also

lifted his 2009 and 2010 earnings estimates for S&P 500

companies to $52 and $75 a share, which are 30 percent and 19

percent higher than prior estimates.

Profits that beat analysts’ forecasts at companies from New

York-based JPMorgan Chase & Co. to Intel Corp. in Santa Clara ,

California, helped boost the S&P 500 by 7 percent last week, the

biggest gain in four months. Since March 9, the gauge has

rebounded 41 percent amid speculation the economy is recovering

from the deepest recession in a half century.

“You saw company after company either raise guidance or at

least guide to the higher-end of the previous range,” Kostin

said in an interview today. “The early reporting companies are

often interesting barometers for what’s likely to take place.”

JPMorgan, the second-largest U.S. bank, climbed 14 percent

last week after saying earnings rose for the first time since

2007 on record investment banking fees. Intel, the biggest

semiconductor company, added 17 percent last week after lifting

its forecast for third-quarter revenue. The 43 companies in the

S&P 500 that have posted results since July 8 have beaten

analysts’ estimates by 15 percent, on average.



Tied for Second



The S&P 500 rose 1.1 percent today to 951.13, the highest

closing level since November.

Kostin is now tied with Frankfurt-based Deutsche Bank AG’s

Binky Chadha for the second-highest S&P 500 forecast among 10

Wall Street strategists tracked by Bloomberg News. Only

JPMorgan’s Thomas Lee, at 1,100, is more bullish, according to

the results of a July 13 survey. Barclays Plc’s Barry Knapp, who

had been the most pessimistic U.S. strategist, boosted his

projection a week ago following the 40 percent surge in the S&P

500 between March and June, the biggest gain since the 1930s.

In his report today, Kostin said he’s most bullish on

shares of energy producers, raw-material suppliers, financial

institutions, technology makers and industrial companies because

they tend to rally when bear markets end. Those companies will

profit from the faster economic growth in emerging markets,

Kostin added. He also boosted his rating on banks, insurers and

asset managers to “overweight” from “neutral” on the

prospect that earnings are improving.



‘Strength to Continue’



“Many of the large-cap banks exceeded analyst expectations

due to strong capital markets and mortgage refinancing

activity,” he said in the note. “We expect these sources of

earnings strength to continue.”

Financial institutions and technology makers have led the

S&P 500’s gain since March 9, adding 97 percent and 54 percent.

Patterns from the past five stock market recoveries since

1970 indicate U.S. equities will likely advance for the rest of

the year, Goldman Sachs said. Stocks tend to “pop” in the

month after reaching a low, “stall” for about three months and

then have a “sustained rally,” Kostin wrote.

The S&P 500 surged 27 percent between its 12-year low on

March 9 and April 9 and added 2.6 percent from April 9 to July

10. Better-than-estimated profit from the second quarter will

spark the “sustained rally” phase, Kostin said.



S&P 500 at 997



The average year-end S&P 500 prediction among the 10 Wall

Street strategists followed by Bloomberg News is now 997.

JPMorgan’s Lee said in a report today that analysts have

been slow to boost estimates out of concern that the recession

will linger. That’s similar to what happened during the 2002

stock market recovery, he said. Lee, who has maintained his

annual S&P 500 forecast of 1,100 all year, recommends investors

favor small companies and businesses that can grow profits the

most as the economy expands.

Knapp of Barclays raised his year-end target 23 percent to

930, saying he’d failed to foresee the size of the advance since

the S&P 500 fell to a 12-year low of 676.53 on March 9. His

increase on July 10 left Kevin Gardiner of HSBC Holdings Plc and

Jason Todd of Morgan Stanley tied for the lowest S&P 500

projection at 900.

The possibility of prolonged economic weakness represents

the most significant risk to Goldman’s stock market outlook,

Kostin said. A higher savings rate, budget cutbacks from state

and local governments and the fragile housing market will likely

keep pressuring consumer and business spending, he said.

Goldman Sachs has a “neutral” rating on consumer

discretionary stocks, such as restaurants, hotels and retailers,

while recommending investors “underweight” sellers of goods

that won’t benefit as much from an economic recovery, such as

food and household products companies.