Asset Allocation

Behind the Numbers, with Sam Stovall

Employment and consumer spending are no longer keeping Standard & Poors’ chief investment strategist up at night. “Every time we update our economic projections those numbers look better and better,” he says. “We think that overall GDP will be up about 3% this year, consumer spending up by less than that about 2.2%, but our worry about unemployment is moderating. Earlier we had anticipated that unemployment would remain above 10% for each of the four quarters of 2010, now our belief is that it will be below 10% for each of those four quarters–in the high nines, but still that’s a lot better than we were forecasting before. And in 2011 our estimate is that we’ll be in the high eights. It appears that economic growth, combined with unemployment numbers are looking better and better each time we update our estimates.” Stovall says 12-month target for the S&P 500 was set at 1215 and that he’s confident that the number will eclipse 1200 and possibly even reach the target, “but then we’re just going to be questioning how much further it’s going to go before it attempts to digest these gains.” His optimism is also fueled by investors putting their money back to work. “We see good capital inflows from 401(k)s, 2009 bonuses, IRA funding and also just from naysayers who are finally throwing in the towel,” and coming back into the market. Stovall notes that S&P currently has overweight recommendations on technology, industrials, and healthcare. “Selectively financials look pretty good, in particular the regional bank areas,” he says. “On the underweight side it’s basically the defensive areas of staples, utilities, and telecom.”–Robert F. Keane