A year of returns, all before mid-april

Many analysts revise targets following strong start to 2013

NEW YORK, April 13, (RTRS): The S&P 500 stock index’s stunning run since the start of the year has made many bullish analysts look conservative.

As the benchmark S&P has roared to record highs this year with a gain of more than 11 percent, many Wall Street analysts have been forced to concede their prior targets were too low and adjust accordingly.

In fact, it has taken less than four months for the S&P to surpass year-end 2013 targets of about two-thirds of the strategists polled by Thomson Reuters in December. Of 47 analysts surveyed, 30 of them expected to see this year end at a level already exceeded by the index.

The midyear targets are even more lopsided, as the S&P is above the midyear forecast for 27 of the 28 analysts who estimated where the index would be by the end of June.

“When we started the year at 1,425 that implied about a 15 or 20 percent total return,” said Phil Orlando, chief equity market strategist, at Federated Investors, in New York, who has a 1,660 year-end target for the index.

“Here we are now 3-1/2 months into the new year and stocks are up 11, 12 percent — there’s not a whole lot left. Either there’s going to be a pullback at some point, or maybe things really get even better than we thought and our 1,660 target is too low.”

The more recent Reuters poll in March showed some analysts had revised targets following the strong start to the year, with the S&P above the midyear target for 21 of 34 analysts sur- were negatively affected by the reluctance of small businesses to invest, while Wells Fargo reported that its pipeline of new mortgages slowed.

“We did get relatively disappointing earnings results from the large banks,” said Jack Ablin of Harris Private Bank.

“It seems investors are willing to shrug off a lot of seemingly down-beat news and push stocks higher.”

Analysts generally attributed the market’s resilience to the Federal Reserve’s stay-the-course policy of promoting economic stimulus with aggressive bondbuying. The Fed this week reaffirmed the measures once again. Minutes released of Fed policy makers showed that the Fed might pair back the program — but only if the jobs market improves significantly.

Next week the government releases new data on housing starts, the consumer price index and industrial production. The Federal Reserve will also release its Beige Book, which describes regional veyed and the full-year target for 18 of 43 analysts surveyed.

The run has been notable for its resilience. As investors buy into weakness, dips are short-lived while bears are forced to cover short positions and asset managers chase performance. So far this year, the S&P has only experienced three consecutive losing sessions once, and the deepest “correction” was a brief 2.8 percent slide in late February.

Thomas Lee, US equity strategist at JPMorgan in New York, this week decided to throw in the towel on a call for a correction, saying in two recent notes to clients that his 1,580 target for the year-end S&P “seems low.” Data in the last six weeks has not been as weak as some expected, and the equity market managed to look past it, anyway.

Benchmark

Lee, in his commentary, notes that JP Morgan estimates 2013 currently is the worst year for active-manager performance since 1995, with an estimated 68 percent of funds falling short of their benchmark. Fund managers, as a result, are taking on more risks in order to play catch-up, he wrote. Now that Lee is more bullish, he noted the biggest risk to this new view is “that the market begins to correct just as we capitulate on it happening. That is potential irony.”

Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon, who is maintaining his target of 1,450 for midyear and 1,500 for the yearend sees a strong likelihood of a significant pullback, partly due to the current market structure which contains a large economic conditions in the US.

Also headlining will be earnings reports Goldman Sachs and Bank of America, and from technology giants Google and Intel. Other companies to report include McDonalds, Coke and Johnson and Johnson.

Meanwhile, Europe’s main stock markets fell Friday as the eurozone approved a Cyprus bailout that will see the country take a harder hit, with US retail sales figures also damping sentiment.

London’s FTSE 100 index of leading companies ended the day down 0.49 percent to 6,384.39 points. In Frankfurt, the DAX 30 slumped 1.61 percent to 7,744.77 points, while in Paris the CAC 40 lost 1.23 percent to 3,729.30 points.

The euro meanwhile slid to $1.3092 from $1.3103 late in New York on Thursday, when it had spiked to $1.3138 — a level last seen on February 28. Gold prices dropped to $1,535.50 per ounce on the London Bullion Market, from $1,565. “The market was on the one number of program-driven traders that follow trends. “It will take a combination of fundamental events to pull people from a buying mode onto the sidelines and when that happens we will start to see prices decline. As those prices decline the program traders flip the switch from buy to sell or buy to short and you get a fairly rapid 8 to 10 percent decline,” said Dickson.

One potential catalyst for a pullback could be company results as the pace of earnings season begins to pick up.

Earnings for S&P 500 companies are expected to grow at a modest 1.1 percent in the first quarter, down from a January forecast of more than 4 percent, according to Thomson Reuters data. Just 6 percent of companies have reported thus far, but companies so far have been notably pessimistic, with a 4.7-to-1 ratio of negative to positive warnings.

“The only thing that happens now is do we start to see something in the company earnings reports — these are really important because that is where the rubber meets the road,” said Gordon Charlop, managing director at Rosenblatt Securities in New York.

Next week 74 S&P companies are expected to report results, across a wide swath of sectors. Financials dominate the week, including reports from American Express Co, Goldman Sachs, Bank of America and Citigroup Inc.

Internet companies Google Inc and Yahoo Inc, along with Dow components Johnson & Johnson, Coca-Cola, McDonald’s Corp and General Electric also report results. hand driven by profit-taking after having risen by three percent since the start of the week and on the other hand came under selling pressure due to disappointing US data,” said Guillaume Garabedian, a portfolio manager at private asset manager Meeschaert.

Eurozone finance ministers formally approved Friday the terms of a Cyprus debt bailout, saying it could now go ahead once cleared by national parliaments. But an apparent increase in the fiscal adjustment the country needs to make, from 17 billion euros to 23 billion, unnerved markets. “Anyone who thinks that the approval of the Cyprus bailout will be the end of things is living in a parallel universe,” said CMC Markets analyst Michael Hewson.

With the bailout decimating its revenue-generating financial sector there is little prospect to balance the economy, he noted, and stuck within the eurozone Cyprus can’t devalue to become competitive in tourism with nearby Turkey.