Tobias Levkovich, the firm’s chief U.S. equity strategist, said he favors shares of larger companies over smaller ones because foreigners will boost U.S. holdings and may prefer to buy well-known stocks. Computer makers, health-care providers and consumer discretionary stocks will outperform, he said.
“There is plenty of dry powder to push share prices higher as confidence returns,” Levkovich said in a Sept. 13 note. “A shift toward growth stocks seems appropriate along with large- cap names especially if foreign money moves into U.S. markets.”
American equities have soared in 2013, sending the S&P 500 to a record, as companies increased profits for a fifth consecutive year and the Federal Reserve maintained economic stimulus. The U.S. equity benchmark is near the average strategist forecast, which calls for the index to finish 2013 at 1,694, data compiled by Bloomberg show.
Levkovich is more bullish than the average Wall Street equity strategist. A Bloomberg survey of seven forecasters shows the S&P 500 will end 2014 at 1,836. The estimates range from 1,955 to 1,650 for next year.
Citigroup in New York predicts the Dow Jones Industrial Average will rise 11% to 17,100 by the end of 2014 from yesterday’s close. The projections are calculated using a combination of nine methods, including valuation, consumer confidence, currency measures and earnings, he said.
Equities rallied today after Lawrence Summers withdrew his bid to be the next Federal Reserve chairman and America and Russia agreed on a plan to remove Syria’s chemical weapons. The S&P 500 added 0.8% to 1,702.2 at 10:42 a.m. in New York.
Stock prices are being pushed higher by investors adding cash to mutual funds and exchange-traded funds, at the same time that companies repurchase more shares, Levkovich said.
Mutual funds have received about $13 billion this year, a reversal from last year when more than $150 billion was withdrawn, according to data from the Washington-based Investment Company Institute. Authorized U.S. buybacks have reached a six-year high of more than $500 billion this year, data from Birinyi Associates Inc. show.
The debate among U.S. lawmakers about whether to raise the debt ceiling and the start of the central bank’s plan to reduce stimulus measures may restrain the stock market in the next few months, Levkovich said. The Fed will probably taper its monthly bond-buying program by $10 billion to $75 billion this week, a Bloomberg survey of economists showed.