For the past three years, experts have argued that stocks have been driven by everything from complacency to a weak dollar to stimulus.However, Bank of America Merrill Lynch’s Research Investment Committee (RIC) led by Michael Hartnett thinks that the next big long-term rally in stocks won’t be driven by any of these things.
“Moving away from short-term tactics, what does the RIC need to see to throw caution to the wind and project big multi-decade upside for stocks? In a word: growth.”
Hartnett sees three catalysts for growth in the near term:
- Fiscal cliff: “The fiscal cliff needs to become a fiscal “slope”, removing a potential growth shock in the US…It’s tough to expect investors to raise the multiple they are willing to pay for US equities if consensus is forced to downgrade GDP in the next six months.”
- China: “BofA Merrill Lynch Global Research China economist, Ting Lu, forecasts GDP growth will slow to 7.7% in 2012, but also expects that the weak data will support more policy easing and fiscal stimulus in September and October.”
- Sustained housing recovery: “The game-changer would be if MBS/ABS values continue to surge, allowing banks to “write-up” their mortgage- related assets. This strengthening in bank balance sheets would likely encourage more lending, and lead to a virtuous cycle in US real estate.”
Photo: Bank of America Merrill Lynch
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