Wednesday, December 16, 2009

My comments on strategists' S & P 500 target

I have posted top strategiests that got S & P 500 right this year and theirs outlook for 2010. I did not however make many comments on my take whether I'm subscribing to their targets.

Most strategist has not changed much of their earning per share estimates for the last 2 quarters. Estimated 2009 EPS is around US $ 56 and 2010 is US $ 74, a 32% improvement. 32% is quite a big jump. The normalized quarterly earning of Q2(US $ 13.81), Q3 ( US $ 15.56) and Q4 ( US $ 16.73) will make the upgrade look less dramatic. Through November, analysts cut earning growth in consumer discretionary and materials sectors but made a big adjustment to financials. In June 09, ananlysts predicting 2010 earning growth in financial stocks will be around 85% but upgraded them in September to 132%. They think the write down is coming to tail end and they do not think consumer spending is going to be that strong.

As we all know that many of the items on the banks balance sheets are no longer mark to market. If they decided to find out their value again, the sharp improvement in home prices will have less severe impacts compared to 9 - 12 months ago. I have not seen many bearish analysts talk a lot about housing price declines anymore. So the US government asset inflation programs seem to be working.

Many of the banks are able to raise money from private sector again. We have been seeing many headlines of Bank of America, Citigroup, Wells Fargo and etc were raising billion of dollars without much problem and returning TARP money to their government.

I will vote that we will see S & P 500 to hit 1,250 - 1,300 in 2010. I'm however is waiting for a pull back of more than 10% between January 2010 - March 2010. Basing on the sharp gains that we are seeing in 2009 and past bull market data, there is only about 50% chance that the First phase of bull run can complete their year 1. I might be frustrated if the pull back is not materialized in Q1 '10 but my weariness certainly will grow going into May. O yea, Sell In May and Go Away!.

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