As the S&P 500 continues to post record highs, one strategist told CNBC the index still has substantial upside as tapering expectations get pushed out as far June.
The S&P 500 closed at a fresh record high of 1,759 on Friday, lifted by a group of positive earnings results. The index has gained over 23 percent this year, demonstrating that investor appetite for equities remains strong, despite the 16-day partial U.S. government shutdown and the debt ceiling debate.
Paul Krake, founder of View from the Peak:Macro Strategies, said the delay of tapering means corporations are now in a strong position to thrive, readying the index for a sharp rally.
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"I can make the argument that tapering [won't] begin until June and that's somewhere around $700 billion's worth of assets that need to be purchased by the Federal Reserve between now and then and that will drive stocks sharply higher," said Krake.
According to Krake, if the Fed keeps interest rates at 0 percent for the next two years, as it has indicated in its guidance, this will keep funding costs for companies at extremely low levels. Cheaper funding costs mean corporations can enjoy healthier returns, he said.
"Given the outlook for historically low funding rates, the S&P 500 looks some 15 percent undervalued, 20 percent from October lows," added Krake, who has increased his exposure to equities in his absolute return portfolio from 50 percent to 80 percent on this bullish view.
"Is it a stretch to say that the S&P will trade at one standard deviation over its 20 year mean? That would equal 18.7 times 2014 earnings, which would put the S&P north of 2,050 – I don't think that's a stretch," he added.
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