Just before the US equity market topped out last August, none other than infamous stock-chart-extrapolator Laszlo Birinyi ventured on to CNBC and proclaimed that the S&P 500 will hit 3,200 by the end of 2017. Since the soprano uttered that extreme, US equity markets have collapsed not just once, but twice and now trade at levels first seen over two years ago...
"It's all noise," squeaks Laszlo Birinyi, deflecting concerns about revenues, earnings, Europe, China, commodities, and rates as he unleashes his latest extrapolation. "If we continue to grow at 11 bps per day, the S&P will be at 3,200 within 2 years,"
Noise indeed...
So blame Birinyi!!
His 2015 "forecast" aside, here is what he said would happen entering the biggest economic and market collapse in US history:
LASZLO BIRINYI, PRESIDENT, BIRINYI ASSOCIATESA
Wall Street veteran who landed his first job at a financial services firm, Auerbach, Pollack & Richardson, in 1972, Birinyi has seen many market crises. The current one doesn't faze him much: "Based on historical data, I articulated a principle some years ago that has been very profitable for me," he says. According to Birinyi's "Cyrano principle," "if the concerns of the market are as obvious as the nose on your face, the market and monetary policymakers will have an amazing ability to adapt and adjust." He believes the Fed will do what it takes to calm the credit crisis.
Birinyi thinks the bull market that started in 2002 is still very much intact. He expects the current economic expansion to continue, with 5% corporate earnings growth helping to propel the Dow to 15,000 by the end of 2008. The signs of a market top, which include speculative fervor and rising stock valuations, "really aren't present," he adds. At 15 to 18 times estimated earnings—the exact number depends on how you measure earnings—stock market values are neither cheap nor expensive. If the market were a traffic light, Birinyi says, it would be flashing a yellow signal now.
Birinyi sees "pockets of value." With risk aversion rising, he thinks investors will pay more for such predictable growth stocks as Google (GOOG) and Deere (DE). He expects commodity prices to keep rising "as the emerging markets continue to emerge." He also favors buying stocks which were "excessively punished" in the recent subprime-related meltdown. They include retailers Tiffany (TIF), Nordstrom (JWN), J. Crew (JCG), and financial giant American International Group (AIG).