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One of the world's most influential market strategists has turned bullish on U.S. equities and advocates the time-honoured "hold your nose and buy" strategy for investors.
Andrew Garthwaite is the head global equity strategist at Credit Suisse. Formerly the world's top-ranked strategist by Institutional Investor, he is now ranked in the top three for asset allocation and sector selection.
In a report released Wednesday, Mr. Garthwaite introduced a 2014 target of 1,900 on the S&P 500. With the benchmark currently at 1,631, this implies an 18 month return of 16.5 per cent.
Mr. Garthwaite's optimism arises from his belief that while quantitative easing has made all asset classes nominally expensive, improving global economic growth and tight credit spreads make equities the most attractive investment by a significant margin.
He notes that corporate balance sheets in the U.S. are in much better shape than government finances (making equities more attractive than sovereign debt) and earnings growth is likely to continue even if the U.S. Federal Reserve reduces monetary stimulus. U.S. earnings revisions have turned higher for the first time in 12 months.
Perhaps most importantly, Mr. Garthwaite points out that U.S. pension fund allocation to equities is currently 35 per cent, ten per cent lower than the long term average. A return to asset allocation normality would see a mammoth equity buying spree by pension fund managers.
On the whole, Mr. Garthwaite believes there is too much fear in the market – generally related to Fed stimulus – and this has created a lucrative entry point for investment in U.S. equities.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .
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