A decade of zero price gains, two busted bubbles, and successive credit crises have left stock investors as disillusioned as they were at the end of the 1970s, but that could set the stage for a multi-year bull market, says Tobias Levkovich, chief U.S. equity strategist at Citi Investment Research.
Six forces, including a housing recovery and energy independence, will align to spark the start of a bull market at some point during the next 12-18 months, Levkovich believes.
“The investment community is distracted by having lost 50 percent-plus in stocks twice since 2000, the plunge in home prices, peak-like profit margins, employment challenges and a potential European sovereign debt/banking crisis,” Levkovich wrote in a note to clients this week. “While we do not expect the markets to react to these drivers in the near term, their coalescence could generate a much more impressive rally over the next few years.”
Levkovich has a 2012 price target of 1375 on the S&P 500, which represents a 13 percent increase from the benchmark’s Thursday close. He does not give a specific long-term target in this special report entitled “The Raging Bull Thesis.”
Along with a housing recovery and drive towards energy independence, Levkovich cites a domestic manufacturing “renaissance,” fiscal reform, an emerging investment class in their late thirties that will rival baby boomers, and the further innovation of smart mobile devices.
“Every 15 years or so, the U.S. undergoes substantial technological change that can act as an economic propellant,” wrote the strategist. “The sheer magnitude of mobility growth brings computing, the Internet, purchasing and entertainment in one’s palm and argues for significant investment in software, infrastructure, bandwidth and more efficient chips, batteries and production techniques. Fortunately, the U.S. remains the global IT leader.”
On demographics, Levkovich writes, “the most fascinating development is the size of the baby boom echo and specifically, the 35-39 year old age group that will be growing meaningfully in the next few years...they have not suffered a lost decade in stocks and thus do not harbor any ill will to the asset class.”
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