Photo: Bloomberg Television
Savita Subramanian, Bank of America’s Chief U.S. Equity Strategist, joins Citi’s Tobias Levkovich this week in unveiling a 2013 target for the S&P 500. And she’s bullish.
Our 2013 year-end target of 1600 implies a 10% price return, where most of the appreciation can be attributed to earnings growth of 7% next year, along with modest multiple expansion from 14.2x to 14.7x on trailing earnings, still below an average PE of 16x. This would represent a new all-time high for the S&P 500, surpassing the 1565 level reached in October 2007. But the S&P 500 total return and equal weighted indices have already broken through their 2007 highs, as have the sector indices for Discretionary, Staples, Health Care and Tech (and the NASDAQ). Meanwhile, S&P 500 EPS hit new highs in 2011.
Among other things, Subramanian points to the firm’s proprietary contrarian Sell Side Indicator, which shows that Wall Street continues to be extremely bearish.
Historically, when the indicator has been below 50, total returns over the subsequent 12 months have been positive 100% of the time. Current bearish sentiment suggests +30% 12-month price returns.
Photo: Bank of America Merrill Lynch
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