Monday, May 6, 2013

New S&P 500 Guidance: To Hit $1900 High by 2014

A 1,900 S&P 500 Index SPX +0.19% by the end of the year? That’s not a 6 that got spun around by mistake, and it’s not quite a target, it’s more like a guidance, according to Birinyi Associates in a recent note.
“It will be reported that this is now our forecast. We would rather think of this, as corporations do, as guidance,” the note, authored by Laszlo Birinyi and Jeffrey Yale Rubin, said. “Our approaches and analysis continue to point toward higher prices. In addition to the historical parallels, we still view sentiment as subdued and nowhere approaching extremes.”
Now that the index has surpassed the firm’s 1,600 target, Birinyi is comparing the current bull market to those from 1982 and 1990. If this run parallels those, we might just be looking at a 1,900 S&P 500 by the end of the year.
Birinyi Associates, Inc.
How convinced is he?
Birinyi said the firm bought an unspecified number of $170 December calls in the SPDR S&P 500 ETF SPY -0.11%. The ETF, which is already up nearly 18% this year at $161.56, would have grow another 5% by December for those calls to be profitable. Similarly, a 5% rise in the current S&P 500 would place the index around 1,697.
For those people holding out for a  market correction to the current run, Birinyi referred back to a note the firm put out in August 2009. The note reminds investors that after the July 1990-March 1991 recession, the S&P 500 rallied more than 230% over 2,553 days without a correction. Similarly, after the March 2001-November 2001 recession, the S&P 500 rose more than 95% over 1,673 without a correction.