Deutsche Bank sees the S&P 500 reaching 1550 next year, well above some of the more bullish forecasts from Wall Street.
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Chief U.S. equities strategist Binky Chadha, in a note released late Monday, also issued a forecast for S&P 500 earnings per share of $96 in 2011, compared to the annualized $91.50 in the 2010 fourth quarter. He expects domestic profit growth of 7 percent.
"Equities will re-rate in 2011 as the recovery continues, jobs growth picks up and credit growth resumes," Chadha said in the note. He recommends overweighting domestic cyclical stocks and underweighting defensives. He is neutral on global cyclicals.
"Q4 earnings are set to beat again; allocations to equities at the beginning of the year could be significant," Chadha said.
Investors may also start to pull money from bond funds and put them into stocks by mid-year, Chadha said. He noted that the recent rise in Treasury yields has driven outflows form bond funds, in a break from the pattern of the last two years. That reallocation so far has been into money market funds.
"Reallocation to equities may require clear expression from the Fed that it was done trying to lower rates for the cycle; we expect the Fed to do this by mid-2011," he wrote.
Chadha's target for the S&P 500 for the end of this year is 1275. The S&P closed Monday at 1240, up less than a point.
Other strategists have recently rolled out forecasts for 2011. Goldman Sachs has a target of 1450 on the S&P 500, while Barclay's Capital has a target of 1420, and J.P. Morgan has a target of 1425.
