S&P Sees Buying Opportunity in Equities, SPX Reaching 1370

[Stocks-to-Watch]

Markets have rallied nearly 30% since August without much resistance, which has made the pullback in the last two days especially painful.

However, such profit taking isn’t cause for alarm, according to Alec Young, strategist at S&P Equity Research, who ultimately thinks long-term fallout from the Middle East and North Africa will be limited, even as investors worldwide will likely be risk-adverse in the near future.

Young writes in a research note out this afternoon that unrest is unlikely to spread to other oil rich nations, like Saudi Arabia, the United Arab Emirates, or Kuwait, “as the wealthier Gulf States’ greater financial resources have precluded the extreme social inequality that has fostered political upheaval in Libya, Egypt, Tunisia and Yemen. In addition, OPEC’s 4.4 million barrels in daily spare production capacity (ex-Libya) is more than enough to offset any lost Libyan or Egyptian oil production which totals 2.5 million barrels per day, according to the EIA.”

This, Young argues, along with continued positive economic data and strong corporate earnings, makes the “current geopolitically driven U.S. equity volatility as an intermediate term buying opportunity.”

Young expects the S&P 500 (SPX), recently at 1308, to climb to 1370 over the next 12 months, a 7% total return.

He concludes: “Given our moderately bullish market outlook, our recommended sector positioning reflects a cyclical emphasis focusing on what we view as dependable global growth at a reasonable price with Industrials, I.T. and Materials recommended overweight. Conversely, we recommend underweighting more domestic, counter cyclical sectors such as Health Care and Utilities.”



Original Article Source by Barrons.com