If anyone still cares about the equity market, here is a pretty good summary of what the computers did this week, courtesy of the holidaypartyless folks at Manhattan's southernmost skyscraper (something tells us the elves, contrary to disclosed information, will be there, and we will be whereever the elves are).
S&P 500 rose 2% this week, with large cap stocks outperforming small cap stocks by more than 200 bps. Materials was the best performing sector, rising 4.2%. Energy fell 50 bps as the oil price faltered. Our 2009 year-end price target of 1060 implies 2.5% downside from current levels.
S&P 500 earnings
Our top-down EPS forecasts of $52 and $75 for 2009 and 2010 reflect +5% and +45% growth, respectively. Our pre-provision and write-down EPS forecasts are $69 for 2009 and $81 for 2010. Bottom-up consensus forecasts a 15% increase in 2009 to $57, and a 36% increase in 2010 to $77.
ValuationTop-down, the S&P 500 trades at an NTM P/E of 15.3X (13.8X on pre-provision EPS). Bottom-up, it trades at NTM P/E of 14.7X and LTM P/B of 2.3X.
Size and style
Large-cap (S&P 500) outperformed small-cap (Russell 2000) by 212 bp over the past week and has outperformed by 523 bp ytd. Large-cap stocks outperformed small cap stocks in all ten sectors of the market.
US Portfolio Strategy baskets
We highlight our Dividend Growth basket <GSTHDIVG> which has outperformed the S&P 500 by approx 3% since mid-October after a long stretch of underperformance. GSTHDIVG consists of 34 S&P 500 stocks expected to raise their dividends in 2009-2010 and that have a higher dividend yield than S&P 500. Long-dated dividend swaps offer the most upside (see Exhibit 4).
S&P 500 stock performance this weekLeaders: AMD, JDSU, PCLN, DOW, WYNN.
Laggards: SUN, TSO, MBI, ZION, AIG.