Five reasons Citi is bullish for 2013

by Michael Tarsala

Citigroup stock strategist Tobias Levkovich sees the S&P 500 rising another 12 percent to reach an all-time high of 1,615 next year.

He still sees “substantive challenges” for the markets, including a shrinking European economy and the looming U.S. fiscal cliff.

Yet his reasons for optimism seem to rest on five key factors:

1) The economy and earnings will expand

Levkovich sees coming improvements in capital investment, industrial production, as well as employment. That should make for modest corporate earnings growth and sustained GDP growth.

2) Washington will find a way to play nice

There will be agreements to address the current fiscal imbalances, pretty much no matter who is in the White House next year.

3) Valuations are OK

Levkovich thinks that valuations support further index gains. His assumption is for forward PEs to rise to 14.9. See a related story on forward PEs that provides a different perspective as to why forward PEs may not stay near that mutliple.

4) The U.S. will remain the relative economic leader

Levkovich sees continued U.S. energy sector expansion, leadership in mobile devices, positive demographic factors and a continued housing recovery.

5) Pessimism reigns

One of the best times to be optimistic is when everyone else is pessimistic. As Warren Buffett likes to say, be greedy when others are fearful. Levkovich sees no shortage of worries, but he also thinks that many are already priced in.



Photo by: kiwanja