By Rita Nazareth
Dec. 8 (Bloomberg) -- The Standard & Poor's 500 Index may
rise at least 28 percent through next year to a record as
corporate profits and the economy improve, according to Byron
Wien, the vice chairman of Blackstone Advisory Services.
In January, Wien wrote in his annual "Ten Surprises" list
of predictions that the S&P 500 would finish 2010 unchanged at
1,115.10. It has gained 9.7 percent this year through yesterday.
The index will extend the advance into 2011 and may reach its
all-time high of 1,565.15, reached in October 2007, Wien said.
That "isn't crazy," Wien, 77, said in a telephone
interview from New York. "It's certainly possible. Things are
improving. You'll have earnings over $90 a share for 2011. As
people become comfortable with the fact that calamity is not in
store, they will be willing to take more risk."
The S&P 500, which closed at 1,223.75 yesterday, near its
two-year high of 1,225.85 reached Nov. 5, rose 20 percent from
this year's low in July amid improving corporate earnings and
the Federal Reserve's plan to pump more money into the economy
to stimulate growth. More than 70 percent of S&P 500 companies
beat the average analyst profit estimate for the sixth straight
quarter.
Strategists surveyed by Bloomberg have a median estimate of
$91 in earnings per share for S&P 500 companies next year,
compared with than the $84 projected for 2010. They see the S&P
500 rallying to 1,325 by the end of 2011, according to the
median projection. Forecasts range from 1,200 to 1,550.
Profit Margin Expansion
Wien, the former chief U.S. strategist for Morgan Stanley,
said gross domestic product growth will exceed economists'
projections for next year. The U.S. economy, which contracted
2.6 percent in 2009, is expected to grow 2.7 percent this year
and 2.5 percent in 2011, according to the median forecast of 63
economists surveyed by Bloomberg. In January, Wien forecast that
GDP would expand 5 percent this year.
"I was optimistic about 2010 and the economy did not turn
out that well," he said. "The economy is improving. There are
more favorable signs on the economy than unfavorable ones."
The S&P 500 advanced 3 percent last week after a record
increase in sales of existing homes, retail sales that topped
projections and reports showing an expansion in Chinese and
European manufacturing. Stocks pared gains on Dec. 3 after
government data showed that the jobless rate advanced to the
highest since April last month, rising to 9.8 percent.
'An Aberration'
"I view that report as an aberration," Wien said about
the November unemployment data. "I'm not willing to say that's
the beginning of a new upward trend. The figures next month
might be more favorable."
As the economy improves, Wien says economically sensitive
companies, especially those in technology, commodities and
industrial, and companies that rely on consumer discretionary
spending, should benefit.
Wien also said investors should invest 10 percent of their
assets in large, multinational companies in developed markets.
In his December 2010 "Market Commentary", he said Coca-Cola
Co., General Electric Co., Unilever NV and Siemens AG have
"great products, strong brands and promising prospects."
The strategist, who said in January that financial-services
stocks would beat the market, is less optimistic on the
industry's prospects in 2011. The KBW Bank Index has risen 12
percent so far this year, outpacing the S&P 500.
'Neutral' on Financials
"I'm sort of neutral on them," Wien said. "There's some
good news, their earnings are improving. On the other hand,
conforming to the new regulatory requirements in Basel III will
hamper profitability."
Wien, who correctly predicted rallies in equities, gold and
oil last year, called the recession in 2001. With the Fed's
benchmark rate at a 10-year high of 6.5 percent, he predicted a
series of interest rate cuts that began with a surprise
reduction by the central bank on Jan. 3, 2001.
He was less prescient during previous bull markets, saying
the Dow Jones Industrial Average would fall in 1997 and 1998.
The gauge rose 23 percent in 1997 and 16 percent a year later.
On Nov. 3, the Fed said it will buy an additional $600
billion of Treasuries in a second round of so-called
quantitative easing, and Wien said there could be more to come.
"They will keep on easing," he said. "That's the only
tool left to them right now. They can't have any fiscal
stimulus. They will never get that through. There would be more
of quantitative easing if the unemployment rate is persistently
rising. Hopefully, that won't be the case. I'm not sure QE2 or
QE3 would do that much good."
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--Editors: Joanna Ossinger, Chris Nagi
To contact the reporter on this story:
Rita Nazareth in New York at +212-617-8908 or
rnazareth@bloomberg.net.
To contact the editor responsible for this story:
Nick Baker at +1-212-617-5919 or nbaker7@bloomberg.net.
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