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Wall Street Likes Energy for 2010

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Energy is one of Wall Street's favorite stock sectors heading into the new year and consumer discretionary stocks are among the most underweighted groups.

Financials and technology also lead the list of top overweights, while telecom and utilities rank high among underweighted groups.

Birinyi Associates this week compiled the views of major Wall Street banks, which typically publish their outlooks for the coming year around this time.

Energy is up 12.3 percent so far this year, and consumer discretionary is up 40 percent.

Financials are up 15.1 percent and tech has been the leading S&P sector, up 59 percent.

According to nine firms, the U.S. stock market should make a more subdued, 9.5 percent move higher, reaching a level of 1222 on the S&P 500 at year end, 2010.

That target is the average of a range that is about 200 points wide.

The highest is Deutsche Bank's 1325 target, and the lowest of the group is Barclays at 1120.

The S&P, so far this year, has gained about 24 percent, more than the Dow's 19 percent and behind the Nasdaq's 43 percent.

The consensus view from the banks is to "underweight" or "bench mark" U.S. equities. Their favorite emerging markets include China, Brazil, India, Taiwan and Indonesia. Their top underweights include Australia, Malaysia, Peru and Israel.

They also expect gold at $1213 an ounce and oil at $80 per barrel. Targets on crude range from $65 per barrel at year end (Deutsche Bank) to $95 (Goldman Sachs). Deutsche Bank was also the only firm that was underweight energy.

The average view on the dollar versus the euro came to a level of $1.45 at year end, slightly below where it is now. But they have a wide range of opinions on the euro and whether the dollar is higher or lower. Bank of America/Merrill Lynch sees the dollar at $1.28 per euro, and Citigroup has it at $1.59.

Their average outlook for the U.S. economy includes growth of 3.1 percent. The firm with the lowest growth forecast was Goldman Sachs, at 2.1 percent, and the most bullish on growth was Deutsche Bank, at 4.9 percent.

They also expect the Fed to hold rates at current levels until at least mid-year. UBS and Morgan Stanley see the Fed moving in June, while Goldman Sachs does not expect a rate hike until December.

Kevin Pleines, the analyst at Birinyi who compiled the findings, said the outlooks show a high level of consistency until the second half of the year. At that point, the views diverge and show more uncertainty, especially about the Fed.

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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