With three months to go in 2012, Bank of America Merrill Lynch’s head of U.S. Equity and Quantitative Strategy Savita Subramanian is one of the first on Wall Street to make a call for 2013.
She’s forecasting the S&P 500 will hit a record high in the year ahead and top out at 1,600. The current all-time high for the S&P 500 was set on October 9 2007 when it hit 1,565.
In a note from the firm, she says: “our 2013 year-end target of 1,600 implies a ten percent return where most of the appreciation can be attributed to earnings growth of seven percent.”
Subramanian adds: “our target incorporates a diverse set of signals, most of which are positive on equities."
But there are also some signs of caution. Wall Street sentiment remains weak. There is also continued concern about the approaching "fiscal cliff".
Unless Congress and the White House agree to a wide ranging deal on a number of fiscal issues there will be massive spending and benefit cuts just as the tax cuts enacted during George W. Bush’s Presidency come to an end.
Subramanian however adds that she believes “some uncertainty will likely be removed by the end of next year.”
She also believes the United States will not sink into another recession, at least not in the short term.
Citi’s Chief U.S. Strategist Tobias Levkovich also made an early call on 2013 two weeks ago. He was slightly more bullish calling for the S&P to hit 1,615 in the year ahead.
As for the months ahead, Subramanian believes the S&P could be in for a correction. There’s concern economic growth will be weak, evidenced by Thursday’s release of second-quarter gross domestic product (GDP).
GDP came in at 1.3 percent, while economists were expecting 1.7 percent. Durable goods for August also came in weak, falling 13.2 percent.
Subramanian also worries that consumer spending will drop in the fourth quarter and that the U.S. could be in for another credit downgrade.
Subramanian’s S&P target for this year remains at 1,450.
Savita Subramanian will be on Power Lunch today at 1 p.m. New York time.
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