Stocks to rise further despite crises overseas: poll

Reuters

By Caroline Valetkevitch

NEW YORK (Reuters) - The U.S. Standard & Poor's 500 index will finish the year with double-digit gains, unfazed by Japan's nuclear crisis or unrest in the Middle East and North Africa, which is driving up oil prices, a Reuters poll found.

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Median forecasts from 51 strategists surveyed over the last week put the benchmark S&P 500 at 1,400 by year-end, which means a gain of 11.3 percent from the previous year.

That forecast is higher than the median target of 1,325 in a December poll. The spread of S&P 500 forecasts for year-end 2011 was 400, down from 625 in the previous poll, suggesting strategists are more confident in their views.

In the near term, stocks could lose ground as investors worry about the impact of Japan's worst earthquake on record and the effects of higher oil prices on the global economy.

However, steady improvement in the U.S. economic recovery will offset those problems and fuel further earnings growth, a factor which helped the S&P 500 rebound some 90 percent from its March 2009 lows.

"We believe that the effects on domestic growth will be relatively muted ... the outlook for earnings has not changed significantly," said Jonathan Golub, chief U.S. equity strategist for UBS in New York.

The three major U.S. stock indexes briefly broke into negative territory for the year last week, and the S&P 500 is still down about 3 percent since its high for the year on February 18.

Fighting in Libya, an oil exporter, and unrest in other countries including Yemen have fueled fears of oil supply disruptions, driving prices to 2-1/2-year highs just a few months before peak travel season in the United States.

ECONOMIC BOOST

This year would mark the third straight year of gains for U.S. stocks since 2008, when the housing market's collapse and ensuing financial crisis pushed the economy into its worst downturn since the 1930s.

"The baseline measures of the economy continue to do better," said Bob Doll, chief equity strategist at BlackRock Inc.

BlackRock's S&P 500 year-end forecast of 1,350 is unchanged from its December forecast, while other firms with closely followed targets raised their year-end numbers. UBS's year-end forecast rose from 1,325 in the December poll to 1,425 in this one. Citigroup went from 1,300 in December to 1,400.

"Retail sales are improving, we've started to see some employment growth, business capital spending is picking up," Doll said.

Among the latest signs of economic improvement is the U.S. government's monthly jobs report, which showed the jobless rate slipped to a near two-year low in February. The labor market has been lagging other parts of the economy, including manufacturing, which has shown steady progress.

At the same time, the Federal Reserve plans to continue supporting the economy through bond buying and by keeping interest rates near zero for an extended period. For the latest poll, see

That's in contrast to policymakers elsewhere such as the European Central Bank, which has said it will act quickly to guard against inflation and is expected to raise rates in April.

The survey's year-end median target for the Dow came in at 12,700, a 9.7 percent rise from the 2010 close. The latest target is also higher than the 12,105 forecast in the December survey.

Still, a handful of strategists put year-end targets for the Dow and S&P 500 below mid-year predictions, saying the end of the Fed's bond purchase program in mid-year could trigger a pullback in stocks.

Stocks will end the year higher, but "it's going to be a bumpy, volatile path getting there," said John Canally, investment strategist and economist for LPL Financial in Boston, which has raised its year-end target since December.

(Additional polling and reporting by Angela Moon, Ryan Vlastelica, Charles Mikolajczak, Edward Krudy and Rodrigo Campos in New York. Additional polling by the Bangalore Polling Unit; Editing by Jon Loades-Carter)

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