Morgan Stanley’s Todd Boosts S&P 500 Year-End Target

By Sarah Jones

Sept. 24 (Bloomberg) -- Morgan Stanley’s Jason Todd, who had been Wall Street’s most bearish equity strategist, boosted his 2009 forecast for the Standard & Poor’s 500 Index by 17 percent because of higher-than-anticipated earnings.

The strategist recommended investors cut stock holdings in July following a 41 percent surge in the S&P 500 since March 9. Todd now expects the index to finish the year at 1,050 after it rose 10 percent to 1,050.78 since his comments two months ago. He also upgraded his 2010 profit forecast for S&P 500 companies by 13 percent to $70 a share.

“The current rally is typical of what follows major bear markets and is not, in our view, the start of a new multi-year bull market,” Todd wrote in a note to investors dated today. “However, we now think it can run for longer than we previously expected.”

Strategists at Wall Street’s biggest securities firms have failed to keep up with the S&P 500 after the steepest surge since the 1930s. The benchmark gauge for U.S. equities is above all but one of the 10 projections by forecasters in a Bloomberg survey this month, the first time that’s happened in data going back to 1999. The average estimate is 1,037.

While Todd’s year-end target is 0.1 percent below today’s close, he said the index could rise as high as 1,100 between now and Dec. 31.

Joyce, Garthwaite, Zyblock

Todd, whose prior forecast was 900, is now tied with Bank of Montreal’s Ben Joyce, Credit Suisse Group AG’s Andrew Garthwaite and RBC Capital Markets’ Myles Zyblock. Barclays Plc’s Barry Knapp is the most bearish at 930.

“None of the traditional equity market indicators are giving a strong sell signal,” Todd said. “Against a backdrop where growth data are likely to be strong into year end and where liquidity remains generous, we think the headwinds preventing the market from trading higher are limited.”

Todd also increased his 2009 earnings estimate by 7.8 percent to $55. Analysts estimate companies in the S&P 500 will end a two-year profit slump in the last three months of 2009, with earnings projected to rise 62 percent on average, according to forecasts compiled by Bloomberg.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.