When Zacks divided $105 projected earnings next year by a
current S&P 500 reading around 1430, we got a 7.34% earnings
yield. We took this as solid proof on the
nature of stocks. In light of this yield, we are very
comfortable putting out a 2013 target of 1600 for the S&P.
That is still only an earnings yield of 6.56%.
To read this article on Zacks.com click here.
Is it time to buy in early January?
Looking out 6 to 12 months, a number of Zacks in-house
strategists see the S&P 500 much higher than it is now. In
fact, it could be well above the previous high of 1470 level,
with a bull case of 1550 by summer. With a firmer resolution of
the "Fiscal Spending Cliff" later, stronger housing markets, more
evidence of successful European interventions, or a China growth
pick-up, stocks go higher still. Our pessimistic
strategists point to the weak elements in the global outlook.
In fact, if we get towards the end of the year with U.S. GDP in
healthy shape and no U.S. recession is on the horizon, we could
get a good stretch above 1600.
The S&P 500 is a balanced global index. For Q4, total
earnings for companies are expected to be up +1.2% over the same
period last year. 45% of company revenues are earned
abroad. Europe and Japan's economies look flat at
best. With a growth turnaround in China and India, heavy
Asia-exposed S&P 500 sectors (IT, Industrials, Materials) may
be where both value and growth is found in 2013. But
Materials price outlooks are weak.
The remaining 55% of U.S. earnings tied to the S&P carry
lower "Global Macro" risk to Europe and Japan. A further
rise in the U.S. housing market offers ongoing fundamental
support to U.S. large and mid-cap stocks. We remain bullish
on U.S. stocks.
Our worries hail from within a modest global GDP growth outlook.
Below are details...
December's End 2012 -- Zacks Sector and Industry
(A) With a rise in U.S. jobs numbers, improved consumer
confidence, and the holiday shopping season,
retail were two key sector strengths:
industries showed us very weak Zacks Ranks.
(B) Other high Zacks Ranked goods and services industries arrived
from building domestic U.S. momentum in the Housing Recovery.
A housing-related industry that has a strong Zacks Industry Rank
. Building momentum in U.S. housing also helps the
sector. We see a strong Zacks Industry Rank for
showed up as unattractive in late December.
(C) Slight improvement in a global outlook appeared to restrain
. Weakness is apparent in poor Zacks Industry Ranks for
. The price outlooks are not great.
(D) In addition, there is notable weakness in Industrial sectors
on this modest global outlook.
Electronic Components Industries
Another industrial-related global industry showing ongoing
(E) IT sluggishness may be a notable feature in modest global GDP
though December saw improvement in IT Zacks Ranks
Computer Software & Services
was the highest ranked IT Industry in late December.
A shift to smaller screen tablets and mobile may not be helping
either. Late December saw the weakest IT Zacks Rank for the
(F) Europe slowdown issues play out with a Market Weight rating
At best -- An Underweight for the
sector is not out of the question.