David Bianco - Fool or Prophet?
Could the S&P 500 actually trade 53% higher next year?
David Bianco, a 33 year-old analyst at UBS AG, thinks so.
Bianco said on Wednesday that the S&P 500 "may" rally to 1,300 by the end of 2009 - the S&P 500 is currently trading at 848.81.
Bianco asserts that global stocks will "withstand a full-blown recession" and "surge" in 2009. This flies in the face of the popular opinion that global equity markets will continue to buckle under the strain of the recession (and possible depression). UBS believes that 2009 will bring "signs of a dawn of confidence" with the "first faint light appearing earlier than most investors expect." Cheap valuations and intervention efforts by many major governments will conspire to pull the equity markets higher, according to Bianco.
UBS also believes that the FTSE 100 may rise 41% in 2009, and that the FTSEurofirst 300 Index may rise as much as 25%.
It should be noted that UBS predicted that the S&P 500 would increase 16% in 2008 - as you are well aware, the index is on track to post one of its worst years ever.
This is a particularly ridiculous prediction to me for a number of reasons:
1. Is this a prediction that is strictly based on a "gut feel"? Or is there any data to back up this up?
2. How can you make this prediction after whiffing so badly on your 2008 prediction for the S&P 500? You are setting yourself up to look pretty ridiculous if the 2009 prediction doesn't come to fruition..
3. There is no historical precedent for the markets rebounding sharply after turning in such a poor year. There will definitely be bear market rallies along the way - but a 53% rally just one year after the markets turned in one of their worst years in history? You're asking quite a bit.
4. This prediction requires quite a few things to happen in order to come true. Hedge fund redemption requests need to slow down and stabilize. Investor confidence needs to rise, and people need to get excited about committing their cash to the stock market once again. Companies need to start providing optimistic forward earnings guidance. People need to start feeling more confident about the economy, their jobs and home values. And most of all, the credit crisis needs to stabilize. This all needs to happen before the markets turn in a strong year. Doesn't 2009 seem a bit too soon for all of this to happen?
What do you think? Will Bianco end up being right? Or will the UBS AG analyst end up as a laughing-stock in a year?
Source: Bloomberg.com - Stocks to Rise in '09, UBS Says; S&P 500 May Gain 53%
Filed under: General Market News