Binky Chadha, Deutsche Bank’s Chief US Equity Strategist is trying to outdo his very bullish calls from 2010. Chadha was correctly bullish at the beginning of 2010 calling for S&P 1325. That made him the most bullish analyst on Wall Street at the time. Chadha is trying to outdo himself this year. He is calling for a raging bull market of 25% in 2011 with the S&P ending the year at 1325 (via CNBC):
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.
Updated: The counterargument to Chadha’s bullish arguments, comes (ironically) from his own bank’s fixed income unit (via Zero Hedge):
- 2010 was a story of expecting low rates, for a long time. We think 2011 will be divided into two halves. The first half represents a test of the low for long view. Is the economy gaining sufficient traction that rates can begin some kind of steady normalization? The second half will be the answer. We think that answer is a resounding no – low for long will come back into vogue. The market will re rally and once again disappoint the economy optimists.
- It is not that the economy isn’t getting better – it is. Instead it is that there are so many headwinds to work through, that recovery is not consistent with premature monetary tightening by either the Fed or the markets. Fiscal stimulus buys time in 2011 but little else. Ironically the stronger growth looks, the more likely fiscal tightening will come into play sooner keeping the recovery on a backfoot.
Source: CNBC, ZeroHedge
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.