Photo: Bloomberg TV
JP Morgan’s U.S. equity strategy led by famous bull Tom Lee just published their 2013 stock market outlook. The title of the report: Be Selective.”We remain constructive on equities overall with an expectation of upside risks for 2013,” writes Lee. “Our base case (and framework) remains that we are in a secular bull market, which started in March 2009 and will continue beyond 2013. We are establishing a year-end 2013 target for the S&P 500 of 1580, based on a P/E multiple of 13.5x our 2014 EPS estimate of $117, and see the drivers of this 12% upside as (1) clearing of policy uncertainty (Washington and Europe) aiding the multiple, (2) acceleration of durable goods spending lifting P/E, (3) resultant pickup in earnings growth (hence estimated EPS of $117) and (4) fifth years in bull markets historically being unusually strong.”
The S&P 500 closed at 1,427 yesterday, which means Lee sees a 10 per cent return from here. Also, his year-end target makes him more bullish than 9 of the 12 strategists who have already offered their forecasts.
This comes as no surprise for those who follow Lee’s work, which is almost notoriously bullish.
But this next element of his forecast may come as a surprise.
We see risks building in 1H and, thus, expect the S&P 500 to be range-bound in 1H13 with a mid-year target of less than 1400 related to the following: (1) uncertainty from fiscal cliff overhang is likely to suppress P/E multiple; (2) economic growth in 1H13 is forecast to slow to 1.25%, reflecting partial impact of cliff (slowing consumption and government spending); (3) strategists, in our view, are broadly optimistic about 2013 prospects—thus, we expect a rocky 1H to reduce bullishness; and (4) historically fifth years of bull markets have tended to be flattish in 1H and stronger in 2H.
That’s right; he expects stocks to go down before going up.
Here’s Lee’s review of 5-year bull markets.
Photo: JP Morgan
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