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

(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.