Morgan Stanley raises S&P 500 12-month forecast

Published Tue, Sep 6 201611:11 AM EDT

Morgan Stanley raised its 12-month price target for the S & P 500 to 2,300 from 2,200, noting that U.S. equities remain the best place to be for investors. "We think the U.S. market is going higher," wrote the firm's chief U.S. equity strategist, Adam Parker, in a note to clients Tuesday, listing four reasons for the bullishness, including the notion that investors are underexposed to equities, a force that can boost the market as they chase performance into year-end. "Investors aren't positioned for big upside — whether you look at futures, options, prime brokerage data, surveys, or anecdotally from meetings, we don't see excessive optimism among the client base," wrote Parker. The new price target by Morgan Stanley implies a gain of 5.6 percent from Friday's close, and places the investment bank among the most bullish firms on the Street. Another reason for the bright outlook relates to the sharp drop in bond yields this year, which makes stocks a better investment, according to Parker. "Bond yields are so low and seem risky," he wrote, arguing that equities offer the best risk-reward outlook of most major asset classes. From a global perspective, the U.S. is also the only major region with the potential for EPS growth, and even though valuations are above their historical median range, dividend yields and buybacks will support those valuations, the strategist said. "The U.S. equity market offers a 2 percent dividend yield and more than a 2 percent net buyback, with we think about 3.5 percent per annum EPS growth for the next two years," wrote Parker. S & P 500, five years Source: FactSet Finally, the vast liquidity in the U.S. is a major advantage that other regions don't offer, providing an incentive for foreign investors to own U.S. stocks, Parker said. "Seventy percent of the global equities that trade $100 million or more each day are in the U.S.," he notes. Parker thinks the current economic expansion could last until 2020, with the S & P 500 reaching the 3,000 level by then. That outlook implies a price increase of 38 percent from Friday's close. "With few other attractive investment alternatives, we see the U.S. equity market as the beneficiary of further appreciation," he said.

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Morgan Stanley raised its 12-month price target for the to 2,300 from 2,200, noting that U.S. equities remain the best place to be for investors.

"We think the U.S. market is going higher," wrote the firm's chief U.S. equity strategist, Adam Parker, in a note to clients Tuesday, listing four reasons for the bullishness, including the notion that investors are underexposed to equities, a force that can boost the market as they chase performance into year-end.

"Investors aren't positioned for big upside — whether you look at futures, options, prime brokerage data, surveys, or anecdotally from meetings, we don't see excessive optimism among the client base," wrote Parker.

The new price target by Morgan Stanley implies a gain of 5.6 percent from Friday's close, and places the investment bank among the most bullish firms on the Street.