Finally some good news in the mid of the chaos… Stifel Nicolaus is so positive that it sees the EUR/USD at 1.40 by year’s end. According to the “contrarian” St. Louis-based investment management firm, “harmonizing S&P 500 EPS for domestic versus international risks points to a 1,600 S&P price target (1,400 prior target) at a P/E 17x $95 (16x prior target).” 

Excerpt below:

“Secular bear markets favor agility over deliberation. The U.S. rebalancing borne of crisis is 3-4 years ahead of the eurozone and China, with a U.S. playbook that indicates self-preservation instincts for overseas political and monetary institutions under rising duress should soon take hold, leading to a monetary blanket guarantee in the eurozone (that collapses spreads), China stimulus (bridging fixed investment vs. consumption), and continued Fed rate suppression (private de-leveraging). We see U.S. GDP traction leading the world, lifting the S&P 500 to 1,600 (P/E 17x adjusted EPS) and EURUSD to 1.40 in 2H12 until factors are in place for a pro-cyclical dollar. We like Tech/Growth in a P/E expansion market, and view Financials as late cycle, “ringing the bell” at the top. China rebalancing and the basing USD work against commodities, but we believe the policy moves we describe should give commodity stocks a dead cat bounce in 2H12.”

“… Secular bear markets feature cyclical bull & bear stages, and we think this one is entering the momentum stage. The cyclical bull and bear markets within a secular bear market may be defined by the oscillation around the 200 day moving average (dma), shown below. We believe this market is crossing over to the “Late Bull” momentum stage.”

Other comments from their “Market Strategy” report published on May 29th:

U.S. fiscal isn’t a problem until 2015-20, when we see it as the problem…”

“Inflation lowers P/E ratios, and deflation dims EPS, but navigating the extremes of inflation and deflation is a sweet spot for equity… Our ~2% [US] inflation view (prior view 3%) results in a P/E ~17x (prior 16x) applied to 2012 quality-adjusted EPS view…”

We like Tech/Health-Tech/Media/Telecom as core, and see Financials, Commodity stocks as trades.”

China faces the problem that real estate and capital spending booms end badly.”

It is too late for bearish epiphanies…”


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