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The S&P closed today at 1267, and a feeling of doom has come over many investors.Yet Bank of America equity strategist David Bianco is sticking with his guns, calling for the index to hit 1400 by the end of the year.
Here’s some of his reasoning:
- At some point, the fear in the market will give way to the maths of low interest rates (i.e., when yields on bonds are so low, investors can’t not buy stocks).
- S&P earnings for the year will be $97, a new record. Next year they’ll be $104.
- PEs have been stuck in the 13x-14x range for over two years despite improved economy. They’re currently at 13x, putting the EPS yield at 7.5% or 600-700 basis points above the 10-year TIPS.
- The S&P 500 is NOT GPD. Two third of non-financial S&P 500 are from manufacturing, where as two-thirds of US consumption is services.
- 40% of the S&P comes from abroad, up from 20% 15 years ago.
- Commodity prices are a net positive for the index.
Take it for what you will. That’s his argument.
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