Barry Bannister CFA's Contributions

Secular bear markets feature cyclical bull & bear stages. We expect this one to cross over to “Late Bull” if we stay above the 200 day moving average (dma) for the S&P 500. But after that, we see the S&P meeting resistance at 1,600 e.g., the secular flat market continues.

We see the S&P 500 ending 2012 at 1,400 with a mid-2012 dip to 1,200 followed by 1,600 around 2013-14 on a P/E 16x normalized, albeit sharply slowing EPS. By mid-2012, we anticipate QE3 in response to deflationary shocks. Beyond mid-2012, we expect large cap growth equities to lead the S&P 500 higher with financials fueling (and capping) the S&P rally at 1,600.

In 2011-13 we see the S&P 500 near the high end of the ~700-1500 range of the past decade, then backto the middle of that range by mid-decade on tails risks (a 2nd oil shock, geo/political risk & Fed exit). We like U.S. growth stocks (Tech-Media-Telecom-Health), because what is coming in 2011-12 may feel like a faint echo of the late 1990s Tech Bubble.

A wall of worry is to be expected. S&P 500 Mid-2011 $1,250 target is unchanged from 3Q view. After ~$1,250 S&P 500 by mid-11, we see ~$1,350 by 2012. 2011 EPS views emerging from 3Q earnings reports are drawing attention to how inexpensive “risk” relative to “risk aversion” has become. We think the U.S.$ is bottoming, CRB is peaking, and EM is peaking as well. Buy mid/large cap U.S. growth stocks.