Sam Stovall Sees a 13% Advance in S&P 500 for 2012

S&P Capital IQ’s Investment Policy Committee cites jump in corporate earnings, recession in Europe and ‘half-speed’ recovery in U.S.

Sam Stovall, chief equity strategist at S&P Capital IQ, suggested Friday, with the appropriate caveats, that the S&P 500 may well return in the mid-to-upper teens in 2012. In fact, S&P Capital IQ’s Investment Policy Committee forecasts that the S&P will end 2012 at 1,400, or a 13.5% advance over the Dec. 8, 2011 close of 1,234.

Sam StovallStovall (left) notes that “history indicates, but does not guarantee, that the S&P 500 return in 2012 will likely be positive,” and goes on to note that since 1900, the median difference in annual price performances for the S&P 500 was 17 percentage points. But using the median 12-month forecasts from each of the Investment Policy Committee members, the group suggests a 15 percentage point change from 2011’s YTD result.

(Stovall will appear on a Dec. 14, 2011 free web seminar sponsored by S&P Capital IQ: ETF Outlook: Equities, Biotech, and Fund Launches, in which he will discuss the equity markets in 2012 and favorable ETF plays.)

The key factors cited by the committee:

  • The S&P 500 is likely to “catch its second wind during the upcoming fourth year of this bull market, but this advance may be tempered by the ineffectiveness of a split Congress.”
  • A near 3% projected growth in global real GDP will be paced by gains in emerging economies, “while pressured by a recession in Europe and half-speed (albeit modestly accelerating) recovery in the U.S."
  • A recession is expected in the eurozone in the first half of the year, followed by a modest recovery, while Chinese GDP is expected to grow 8.0% to 8.5%.
  • S&P 500 operating earnings are projected to grow 8.5%, down from 16% in 2011, paced by cost-cutting, share repurchases and improving revenue growth.
  • While the S&P 500 “should advance to the 1,350 to 1,370 region, and possibly 1,400, by the first quarter of 2012,” there could be a 10% to 15% correction in the second and third quarters.
  • The recommended asset allocation for a moderate investor would be 45% U.S. equities/15% foreign equities/25% bonds and 15% cash. The suggested allocation to bonds is below S&P’s standard 30% exposure, while the cash allocation is up from its normal 10% recommendation.
  • As for sectors, S&P suggests a cyclical bias in which Consumer Discretionary, Consumer Staples and Information Technology is overweighted, while underweighting Financials and Telecommunications Services.
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