Wall Street strategists tracked by Bloomberg predict the S&P 500 may surpass its all-time high next year. The benchmark could end 2013 at 1,585, according to the median forecast of five analysts polled by Bloomberg News, which would 1.3% higher than its October 2007 top.
The improvement in the U.S. economy and signs Europe’s debt crisis may be easing made Treasurys less attractive than equities this year. The yield on the benchmark 10-year bond fell to 1.38% on July 25, according to Bloomberg data, a record low. It finished last week at 1.76%, from 1.88% at the end of 2011.
The Barclays 10-20 Year Treasury Total Return Index has climbed 3.3% this year. The Barclays Municipal Bond Index has advanced 6.1%, while a gauge of Treasury inflation- indexed notes known as TIPS has added 6.3%.
Debt issued by companies, loans and hedge funds also trailed stocks. A Barclays index of investment-grade U.S. corporate debt has gained 9.9% in 2012 and a gauge of high-yield credit has advanced almost 14%, as of Oct. 19. The S&P Leveraged Loan 100 Total Return Index is up 9.7% this year, while the HFRI Hedge Fund-Weighted Composite Index added 4.8%.
The S&P GSCI commodity index is poised for its smallest annual advance since plunging in 2008. China's economy expanded 7.4% last quarter, the lowest pace in more than three years, the government said Oct. 18. A slowdown in the world’s second-biggest economy and largest consumer of raw materials is putting pressure on the ruling Communist Party to add stimulus, fueling confidence the country will avoid a hard landing and boost world economic growth.
The MSCI Emerging Markets Index, which tracks stocks in 21 developing nations including China, Brazil and Russia, has climbed 9.8%, and the Euro Stoxx 50 Index for the 17-nation eurozone is up 9.7%.
The 34% rally for the S&P 500 in 1995 was its biggest gain in 37 years. The U.S. equity benchmark traded at an average 16.6 times reported earnings and rose more than 19% annually through 1999 as economic growth boosted profits and investors snapped up new-technology businesses. The index ended last week with a price-earnings multiple of 14.5, data compiled by Bloomberg show.
Equities remain cheap compared with other assets, according to Alan Higgins, who helps oversee $48 billion for Coutts & Co.
Profits for S&P 500 companies represent 6.9% of the index’s price, compared with a yield of 2.7% on investment-grade U.S. corporate bonds, according to Bloomberg and Barclays data. The spread of 4.2 percentage points compares with an all-time high of 4.6 points in 2011, the data show.
“Equities still stand out either as attractive or reasonably valued, so we are more likely to invest there,” Higgins, the London-based securities firm’s chief investment officer for the U.K., said in a phone interview on Oct. 18. He cut investments in credit last week. “They are more likely to take the lead based on current valuations.”
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[BRIEFING.COM] S&P futures vs fair value: +3.40. Nasdaq futures vs fair value: +7.20. The S&P 500 futures trade three points above fair value.
Markets in Asia ended on a mostly higher note. The Reserve Bank of New Zealand hiked its key rate 25 basis points to 3.50%, as expected.
- In economic data:
- China's HSBC Manufacturing PMI jumped to 52.0 from 50.7 (consensus 51.0)
- Japan's trade deficit narrowed to JPY822 billion from JPY909 billion ... More
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