By Daniela Silberstein
Dec. 16 (Bloomberg) -- The Standard & Poor’s 500 Index may rise about 8 percent to 1,200 by the end of next year, according to Morgan Stanley, which said it prefers stocks in North America over European shares.
The benchmark index for U.S. equities will probably reach a peak early in 2010 before hitting a trough in the second or third quarter and a “comeback towards year-end,” Morgan Stanley strategists Jason Todd and Gerard Minack wrote in a report. They have a “neutral” stance on North America, compared with an “underweight” position on Europe and the U.K., saying that U.S. stocks are “less vulnerable to sovereign stress and banks now less leveraged.”
After surging as much as 64 percent from a 12-year low on March 9, the S&P 500 has been little changed since mid-October amid concern the economy’s recovery from the worst recession in seven decades won’t be sustained.
“Headwinds for equities are rising but are not sufficient to kill the rally yet,” Todd and Minack said. “For now, we prefer equities over corporate credit.”
New York-based Morgan Stanley estimates operating earnings in the S&P 500 at $77 a share next year and $85 a share in 2011.
“Earnings deliverability will be the single most important differentiating factor across stocks and sectors” in the first half of 2010, according to the report. “Thereafter, we expect the focus will shift to sustainability of earnings (particularly margins) as cost growth begins to rise in line with revenue growth.”
Morgan Stanley strategist Teun Draaisma wrote in a Nov. 30 note that European shares may extend the rally in equity markets since March to as high as 1,200 for the MSCI Europe Local Index next year before falling to 1,030. The measure closed at 1,101.348 yesterday.
To contact the reporters on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net
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