RBC entered the year with a very bullish posture (see their 2010 outlook here) and the recent sell-off hasn’t altered their position. They see the market continuing its bull run and ending 2010 with a 16.5% gain at S&P 1300. Their thesis is built around three primary factors:
1) The market is still cheap. The average analyst consensus is calling for $77.50 this year. That pegs the S&P at a PE ratio of just 14.4 – well below its historical average of 16.3. They think the entirety of 2010 will be made up of analyst revisions, upgrades and price target increases.
2) Globalization. RBC says the global economy is stronger than it has ever been because it is so intertwined. The rise of emerging markets has bolstered the entire world at a time when developed markets are weak. Although the recovery has been uneven in both markets we will all ultimately benefit when the entire global economy returns to full strength.
3) Stocks are still hated. RBC argues that stocks are still a hated asset class. They argue that, in addition to $3 trillion in money market funds, there is a disproportionate amount of cash in bonds. If interest rates rise and/or the economy continues to recover this money will have to flow into riskier assets. Stocks are the most obvious beneficiary.