In a note to clients today, Savita Subramanian, Bank of America’s Head of U.S. Equity Strategy, outlined the firm’s 2012 outlook for the S&P 500.We forecast the S&P 500 will end 2012 near the highs of its two year trading range, with a year-end target of 1350. Continued macro uncertainty combined with healthy but slowing earnings growth lead us to prefer investments with higher quality, secular growth, and sustainable and growing yield.
Here are the key points from equity strategy team’s thesis:
- Good micro, bad macro: we expect healthy earnings growth but a backdrop of continued uncertainty and heightened risk aversion
- 2012 year-end target = 1350
- Multifaceted approach to target model based on fundamentals, sentiment & technicals
- 2012 economic outlook: European recession but slow global and US growth
- We assume an elevated equity risk premium of 650bp, which is 50%+ higher vs. history
- EPS Outlook: $98.25 for 2011 (15% y/y) and $104.50 for 2012 (6% y/y)
- S&P 500 European exposure = 18% of profits (highest for Tech)
- S&P 500 govt. exposure 8-10% of revenues (highest for Health Care & defence)
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