JP Morgan's Tom Lee Still Expects S&P to Hit 1,475 By Year-End (Videos - 10/17/2011)

Source: Breakout on Yahoo Finance
Tom Lee, JP Morgan's Chief Equity Strategist (who's been bullish on the stock market since June 2009), was interviewed by Matt Nesto on Breakout (Yahoo Finance) on October 14 and 17, and told viewers that he expects a 20% rally in the S&P into year-end (1,475 target), which is a new bull market high.

"I think that this rally that we've seen since October is much more credible than the ones we've seen since July. The reason being, I think a very important market to watch when you're looking at equities is the high yield market. And the high yield market had been selling off on almost every rally, so you really had a big divergence. Since October 4, we've seen the biggest rally in high yield in 2 years. So I think you're basically getting a confirmation that investors are embracing risk again, which means the stock rally I think has a lot more legs to it." (video #1).

"And then as I look at Q4. We have to think about the fact that Brent Crude is down $25 from its high, that's almost a $3 tailwind to S&P earnings. And then these economic momentum indicators, like the Citigroup Surprise Index, have actually moved up. Historically that's been associated with an upward revision in S&P earnings." (video #1)

"I think it's going to be very possible to see something like a 20%+ rally from current levels in the S&P." (video #2)

S&P at 1,475 is in the 2007-2008 channel, around the peak (stockcharts.com)

Reasons why:

1) "Europe is moving towards the endgame" (finding a solution).

2) Macro risk of a hard landing in China is off the table.

3) Hedge funds have been net short the market, and historically get positive (bullish) when credit spreads rally and economic surprise turns up.

4) "High yield bond prices, which are 91% correlated with S&P price/book, are telling us the S&P should be fairly valued close to 1,400" (interesting).

He provides individual stock picks in the video clips below. Let's see if he can time the top of the bull market, or at least get close (in the media).





Direct Links:

http://finance.yahoo.com/blogs/breakout/expect-20-end-market-rally-says-jpm-tom-131844848.html

http://finance.yahoo.com/blogs/breakout/october-rally-more-legs-jpm-tom-lee-203713571.html

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