What Big Time Investors Really Think About Earnings, Equities, And The Odds Of Another QE

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Investors are increasingly bullish on the U.S. economy, U.S. equities and earnings, according to a new note by Citi’s equity strategist Tobias Levkovich.An email questionnaire to 115 institutional clients showed that investors now expect the S&P 500 earnings per share (EPS) to increase over 7 per cent year-over-year (YoY).

This is below consensus expectations of 8 per cent bottom up growth, in which investors focus on individual stocks as opposed to the industry, but above Citi’s 3.3 per cent top-down view, which looks at the big picture.

Also, over 90 per cent no longer expect a U.S. recession this year and nearly 80 per cent do not expect QE3 to be initiated this year.

Here are some key findings:

  • Investors have raised their view of the S&P500 year-end target. They weighted average of client expectations for the broad market index has is now up to 1,422, from 1,347 in January. Nearly 75 per cent expect a close above 1,400. Fewer than 15 per cent expect the index to end below 1,350.
  • More than 80 per cent want to allocate additional money towards equities, with nearly 40 per cent favouring U.S. stocks. Levkovich suspects this could reflect higher earnings growth expectations among investors, above Citi’s 3.3 per cent EPS growth forecast for S&P500 stocks.
  • There is a nearly 50-50 split between investors who think a 20 per cent rally is more likely than a 20 per cent decline, compared with more than 60 per cent that expected a strong rally in January.
  • Tech stocks continue to be a favourite among portfolio managers and utilities. “”Institutional clients still harbor a robust preference for IT stocks while maintaining disdain for Utilities and Telecom Services names (see Figure 9) – two areas we suggest being overweight.”
  • Biggest risks to the market include missteps in government policy and geopolitical risks even though expectations are for oil prices to be subdued.
  • Majority of those polled do not expect gold prices to end above $1,700 per ounce.

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