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S&P 500 to Hit 1,600 by Year’s End: Analyst

One top analyst says her firm is seeing strength in the markets and expects an upside for stocks in 2013.

"The big surprise for the U.S. equity market is that we might not see a pullback this year, despite what many in the markets are expecting," said Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America/Merrill Lynch.

Subramanian said that her firm is expecting the S&P 500 to reach 1,600 by the end of the year, noting that broadly, companies have reported a record level of earnings every year since 2010.

"Until we see a real degradation in earnings, that would cause concern, but they have been consistently growing," she said, "this is a sign that what we're seeing is real."

Although many investors see the current rally going "too far, too fast," Subramanian thinks negative sentiment and relatively low analyst estimates will help the market avoid a typical 5 percent correction. "I think the market could grind higher from here," she said.

"All of the forward looking commentary from companies is pretty positive for 2013," she added. With two out of every three companies providing higher guidance on their capital spending, cash could come off the sidelines this year, she said, and the trend "could spur economic growth and get us to a better place."

Subramanian sees the increase in capital expenditures as a "strong theme that will translate into growth in the second half," suggesting stocks with gross domestic product sensitivity that are globally diversified.

She said these companies are in technology, energy, and big cap industrials, and "have gotten cheaper over the past couple years around fears of a global recession."

"Why not buy these stocks while they're cheap? Positioning for short term moves is a risky strategy," she said.

— By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from Squawk on the Street @ToscanoPaul

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