Jefferies’ Chief Global Equity Strategist Sean Darby has published his outlook for U.S. equities.He argues that U.S. equities will outperform every other financial asset classes as well as most other global equity indexes. He see the S&P 500 generating double-digit returns, and in Q1, he expects the S&P 500 to trade between 1,100 and 1,322.
His strategy note, titled The Return of US Competitiveness, highlights the increasing competitiveness of U.S. manufacturing relatively to other low-cost countries like China.
This is a sentiment shared by Citi’s Tobias Levkovich who, like Darby, describes this trend as a “renaissance.”
Here’s a summary of Darby’s outlook and assumptions:
We expect US equities to outperform treasuries, commodities and precious metals as well as other global equity markets in US$ terms. We forecast US GDP growth in 2012 to accelerate from 2011, with GDP growth averaging 2.5% per quarter. Economic growth in 2012 will continue to depend upon a combination of moderate consumer spending and investment capex — primarily equipment and software — as the primary sources of growth. Monetary policy will remain very accommodative and the Fed will probably implement a QE3 that features MBS purchases. We anticipate almost double digit returns for the S&P 500 (excluding dividends) with range trading markets for most of the year (for S&P 500 1,322 to 1,110 in 1Q 2012). Earnings growth will be modest but margins will likely remain stable. Sector rotation will be increasingly important as the S&P 500 attempts to break out of its 200 and 250 day moving averages. We believe consensus has underestimated how competitive the US economy has become and the rebalancing of growth towards the real economy. We also highlight sector scenarios based on seasonality and the forthcoming US election.
And here’s what he sees being a key driver to equity returns relative to other assets:
US equities offer the most attractive risk return compared to bonds, commodities and high yield debt, in our view. While equity relative valuations are attractive for equities against other financial assets, a reversal of flows out of income and commodities are the most likely catalysts for share price appreciation, in our view.
Here’s a look at how Darby expects the S&P 500 to trade this year.