July 21st, 2009
02:53 PM GMT
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LONDON, England– In the past week, investor sentiment has turned decidedly more positive. On Monday, the Standard and Poor's 500 Index hit an eight-month high. Better than expected earnings from Goldman Sachs in financials, to Intel in tech, to Caterpillar the biggest maker of earth moving equipment, have all helped push the market higher.

Investment banks are raising their year-end projections for the S&P 500. Credit Suisse is advising clients to cut their bond holdings and buy stocks, reversing their advice from June. The bank has raised its year-end guidance for the benchmark index by 14 percent to 1,050, citing better earnings and economic conditions.

Goldman Sachs is also turning more bullish. It has a year-end target of 1,060 for the S&P 500. "Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009," its chief U.S. investment strategist, David Kostin wrote this week.

He also raised his 2009 and 2010 earnings estimates for the S&P 500 companies to $52 a share and $75 a share, substantially higher than his previous estimates (a 30 percent increase over his previous 2009 estimate and a 19 percent increase over his previous 2010 estimate.)

However, Kostin is hedging his bets, saying the biggest risk to his forecast is the possibility of a prolonged economic slump.

He also points to budget cutbacks from state and local governments, a higher savings rate, and a weak housing market as keeping consumer and business spending in check.

Goldman is among the most bullish of Wall Street investment banks on equities. Others include JP Morgan which has a target of 1100 year end for the S&P 500. At the other end of the spectrum, HSBC and Morgan Stanley both have a target of 900.

The S&P 500 has risen some 40 percent from its March low, and if the bulls are right, the rally has further to go. So far, some 79 percent of S&P 500 companies have beaten earnings forecasts, the best showing since 1993.

For the rally to continue, companies will have to continue to beat forecasts, and investors will have to remain confident that the economy will continue to improve.

Do you think the rally has come too far too fast?

soundoff (6 Responses)
  1. niyi

    we are back there again. thosw who told us the trash are leading the pack. It's deja vu. Let's start sowing the seed of another bubble. Those who counldnt predict their downfall are back in the driving seat.
    Let's see how far the herd will follow until the hard truth hits home. If not for TARP all of them would have been history like Lehmans. Lets wait and see.

    July 21, 2009 at 6:41 pm |
  2. Terrence Deagle

    This is absurb. This is purely a suckers market. The market will continue to rise over the rest of the summer and the market will appear bullish. By the end of September or early October, Wall Street and rest of the world will be crying a river for the market will crash again just like it did in 2008. Look, we're in another "Great Depression" that's going to have an affect on every person worldwide. It's just the beginning.

    July 21, 2009 at 10:00 pm |
  3. PJB

    Why not just use money as a medium of exchange for goods and services. Not something to gamble with or to speculate on or to venerate or to use to divide us.
    No need for fractional reserve lending either. Treasury makes the money that is needed based on GDP or any other "measure" of real wealth.
    That is what the constitution tells you to do. They knew all about the financiers and speculators and how they lure in the trusting...

    July 22, 2009 at 2:16 am |
  4. Curtis Boulanger

    there is no bubble here to be created, this is the start of a market rebound; so all of the stocks which are currently undervalued can catch up to their true price, initiating the stabilization of the economy

    July 22, 2009 at 6:46 am |
  5. jack markowitz

    The US economy cannot sustain a guns and butter economy. Guns and Butter economics ruined LBJ's Great Society and led to his downfall. Obama is falling into the same trap. He was not elected to continue the Bush Chaney War Policy. If Obama pursues a guns and butter economy he will fail, his presidency will fail and the economy will fail (again). Did the Pentagon inject Obama with a war fever serum after his inauguration? Elected as the anti-war candidate he transforms into a Bush Chaney Robo Cop drone right before our eyes.

    July 23, 2009 at 5:24 pm |
  6. pete

    Rally? Recovery?

    Sure, great but what about those trillions in losses from sub prime mortgages, and related derivatives plus accumulated colossal government deficits since Reagan started the joy ride back in the 80s?

    Can those be swept under the rug? Or are we just postponing the reckoning time hoping perhaps this Thing will go away somehow?

    August 9, 2009 at 9:59 pm |

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