S&P Capital IQ’s Stovall: S&P 500 Will Rise to 1,670 in Next Year

Wednesday, 03 Apr 2013 08:21 AM

By Dan Weil

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The stock market’s rally that has taken it to record highs isn’t over yet, says Sam Stovall, chief equity strategist at S&P Capital IQ.

"Whether you look forward, or to the past, in general, it says we are trading at a discount" to historical price-earnings ratios, he tells Yahoo. That discount totals 12 to 15 percent, depending on how you measure it.

While stock prices have more than doubled from their March 2009 lows, “it still looks relatively attractive," Stovall says.

Editor's Note:
Use This Single Loophole to Pay Zero Taxes in 2013

He expects the Standard & Poor’s 500 Index to reach 1,670 within a year, a 6 percent increase from Tuesday’s close of 1,570. Stovall sees the S&P 500 ending the year at about 1,620 to 1,630.

So what is going to boost the market further? First, the U.S. economy is likely to grow more than originally expected this year — perhaps 2.7 to 3 percent, Stovall explains.

Second, emerging market economies are forecast to expand more than 5 percent this year, and about 50 percent of U.S. corporate revenue from companies in the S&P 500 comes from overseas.

Then you have corporate cost cutting and share repurchase programs.

“So our belief is that with a lack of alternatives, and with reluctant investors getting back in late to the overall market environment, we still have upside potential," Stovall states.

Meanwhile, once you’re in the stock market, remember that you’ll have to endure some serious downdrafts, says Vanguard Group founder John Bogle.

Stock investors should be prepared for at least two declines of 25 to 30 percent, maybe even 50 percent in the next 10 years, he tells CNBC. But he’s not worried about it.

“Why it doesn't bother me is if you hang on through the cycle, it's the only way to invest,” Bogle says. “Trying to guess when it's going to go way up or way down is simply not a productive way to put your money to work.”

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2013

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