The Standard & Poor’s 500 Index’s record rally probably has another year to go as investors give up their pessimism and buy, according to Laszlo Birinyi, one of the first money managers to tell clients to buy before the bull market began.
“As long as you have this sort of hesitancy or reluctance instead of acceptance, the positive case is still very much intact,” Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, said in a March 26 phone interview. “Don’t go looking for the exit. Leave the door open for a good year, because that is the one possibility that I do not hear.”
The S&P 500 rose 0.4% to 1,569.19 yesterday, exceeding its previous record from October 2007 and recovering losses from the financial crisis that wiped more than $10 trillion from U.S. market value. Even with the rally, share volume on all U.S. exchanges has declined for four straight years and, at less than 6.4 billion shares a day, is the lowest since at least 2008, according to data compiled by Bloomberg.
Birinyi advised clients to purchase shares before March 2009, when the S&P 500 reached a 12-year low. The U.S. equity benchmark is up 132% since then. While companies with earnings most-tied to the economy such as retailers, computer makers and banks have led the advance, makers of home products such as soap and drugmakers are up the most in 2013.
“It’s surprising to see that it’s not the deep cyclicals or the names that I would have expected in a really good market,” Birinyi said. “It just shows that people are comfortable with the market, and there’s a little bit more of a focus on stock picking than people realize.”
S&P 500 profits are expanding for a third year and the U.S. Federal Reserve remains committed to continuing its unprecedented economic stimulus. The Fed pumped more than $2.3 trillion into the economy through monetary easing since 2008, sending Treasury yields to record lows last year. Per-share earnings are projected to reach $109.40 this year, compared with about $62 in 2009, analyst forecasts compiled by Bloomberg show.
While profit estimates are set for a record, growth slowed last year to 8.1% for the fourth quarter compared with the 28% average of 2010 and 2011, data compiled by Bloomberg show. Analysts also cut their projections for the first quarter to a contraction of 1.8% from growth of 1.2% at the beginning of the year.
“What I see looking forward is pretty flat earnings growth,” Jeffrey Kleintop, the Boston-based chief market strategist at LPL Financial Corp., which oversees $350 billion, said by telephone on March 28. “This market needs earnings to turn up before it can really begin to move higher.”