Photo: Daniel Goodman / Business Insider
Citi’s Tobias Levkovich is out with a note that, in contrast with some other strategists, is very bullish on the prospects for a rally over the next few months.Though concerned by weakening global growth and the Euro crisis, he feels that a lot of that risk is priced in, and that a preponderance of other data suggests a positive inflection for markets.
Here’s why he predicts a rally:
- “The Panic/Euphoria Model, normalized earnings yield gap analysis and implied long-term EPS growth approaches all suggest a better than 94% chance of market gains in the next year…”
- Current credit conditions and hiring intentions belie predictions of an imminent US recession.
- Citi’s Global Economic Surprise index is lower than its been since the crisis. It looks like a trough, and a turnaround seems likely.
- Investors have fled stocks regardless of sector and quality, there’s a high level of intra-stock correlation in large cap prices. This has been a good entry signal over the past few years.
- Declines in earnings projections indicate an awareness of risks, investors have accounted for negative news.
Levkovich seems very confident in his prediction, and thinks the rally will run through the summer into the fall. In his words “…the horns are growing back for this resurrected bovine..” We’ll see if the markets support him.
His year-end target for the S&P 500 is 1,425.