Here is TD Waterhouse PAIRRL 2013 U.S. Equity Outlook report.
prepared by Ryan Lewenza, CFA, Senior U.S. Equity Analyst, TD Wealth
Highlights include:
• One would think that with fears of a European debt crisis, the prospect of a hard landing in China and the U.S. economy potentially going off the fiscal cliff that the U.S. equity markets would be down year to date. Instead, the S&P 500 Index (S&P 500) has advanced 12.6%. The Nasdaq Composite Index (Nasdaq), with the help of Apple Inc. (APPL-Q), rose an impressive 15.6%. Despite a number of headwinds, the U.S. equity markets climbed the proverbial “wall of worry” in 2012.
• For full-year 2013, our base case is for another year of modest economic growth, as continued deleveraging, high unemployment, and soon to be implemented government austerity provide headwinds to growth. TD Economics is forecasting real GDP growth of 2% in 2013, well below long-term trend growth of 3.3%.
• Combining our 2013 S&P 500 earnings forecast of $104.00 with a projected forward P/E ratio of 14.3x, our year-end target for the S&P 500 is 1,490, which implies a potential mid-single digit price return for 2013. Adding on a 2% dividend yield equates to a roughly 7% targeted total return for 2013.
• We believe the S&P 500 could trade in a range of 1,270-1,275 on the downside and 1,500-1,550 on the upside over the course of 2013. In our view, healthy corporate earnings, low interest rates, strong corporate balance sheets and reasonable valuations should help to provide a floor for the S&P 500. Conversely, we believe below-trend economic growth, deleveraging, and the continuation of the debt and austerity problems in Europe and the U.S., will act to provide a ceiling for the S&P 500 in 2013.
• From a sector perspective we continue to recommend an overweight in the information technology, health care and consumer staples sectors. We remain underweight the financials, consumer discretionary and telecom sectors. Energy, materials, industrials and utilities are at market weight.
You may read and/or download the complete TD PAIRRL 2013 U.S. Equity Outlook report below in the slidedeck:
