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Morgan Stanley Channels Weird Al to Raise Stock Market Forecast

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Like many of us who’ve been in the vicinity of an FM radio or Jersey Shore club in the past month, the strategists at Morgan Stanley have Meghan Trainor’s song “All About That Bass” stuck in their heads.

Unlike the rest of us, however, Adam Parker and company managed to re-interpret the hit into a reason to be bullish about U.S. stocks. In a report that reads as if Weird Al Yankovic had taken a weird career turn and become a market strategist, Morgan Stanley’s “All About That Base (No Trouble)” note announced an increase in the firm’s 12-month forecast for the Standard & Poor’s 500 Index to 2,125.

The “base case” in Morgan Stanley’s view is earnings growth of 7% in 2014 and 2015 and the low probability of a “bear case” that would result in flat profits this year and only a 2% increase next year. Hence the “No Trouble” part of the title, playing off the “no treble” lyrics of the song.

It wasn’t just the song title that caught the strategists’ attention. Here are the other lyrics that spurred the imagination of Weird Adam Parker and crew:

Small Caps

“Momma told me not to worry about my size.” The strategists apply this piece of advice to market capitalization, saying small-cap stocks are poised to do better than larger companies between now and the end of the year. This would follow some serious underperformance: The Russell 2000 Index was up 0.6 percent in 2014 through last week, compared with an 8.6 percent gain in the S&P 500. The main reason, according to the report, is the potential for greater profit-margin expansion among smaller firms.

“All the right junk in all the right places.” That right place, apparently, is not in your portfolio right now, in Morgan Stanley’s view. Instead, they recommend these “high quality” small-cap stocks: Valmont Industries Inc., AmTrust Financial Services Inc., Meredith Corp., UniFirst Corp., Texas Roadhouse Inc. and Chemed Corp.

Morgan Stanley’s not the only firm raising its forecast today. Deutsche Bank AG strategist David Bianco increased his year-end S&P 500 target to 2,050 from 1,850 and his 2015 projection to 2,150. That leaves Wells Fargo & Co.’s Gina Martin-Adams alone at the bottom rung of the strategist table with an 1,850 forecast for the end of 2014, which would require a 7.7 percent slide from last week’s close.

Anyway, “All About That Bass” is currently No. 2 on Billboard’s Hot 100 chart, right behind Taylor Swift’s “Shake It Off.” Come to think of it, that one has lyrics applicable to this bull market too: “The players gonna play, play, play, play, play. And the haters gonna hate, hate, hate, hate, hate.”

The best the bears can do is probably No. 12, Ariana Grande’s “Problem” in which guest rapper Iggy Azalea warns: “Smart money betting I’ll be better off without you.”

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