Market Direction and Stock Trends

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Man who called S&P 500 to hit 2,500, says don’t bet against this stock market
By: MarketWatch | September 22, 2017

Laszlo Birinyi thinks the S&P 500 is only at the midpoint of its ascent

A prominent equity bull, Laszlo Birinyi, who accurately forecast that the S&P 500 would hit 2,500 by September, thinks the stock market has more room to run before 2017 is over.

In an interview with MarketWatch, Birinyi described the Federal Reserve’s plan to continue to increase borrowing costs despite sluggish inflation and unwind its roughly $4 trillion balance sheet, lofty valuations and a number of market bears calling for a large downturn mostly “noise.”

He said the criteria that his investing company looks at to determine when to abandon his bullish views “just aren’t there.”

The 73-year-old president of research and money manager Birinyi Associates Inc., notably points to sentiment, which he believes is still not showing signs of the unabashed degree of enthusiasm that tends to signal a market top.

“We’ve done studies on Wall Street to determine when the Fat Lady is singing,” Birinyi said, referring to the point at which investors should exit the market. “And when you look back, none of the things that concern us about the beginning of a bear market are currently in existence, like exuberance,” he said. A bear market is defined as a decline of at least 20% from a recent peak.

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The former Salomon Brothers Inc., research analyst pointed to the halcyon days of the dot-com bubble in the late 1990s when technology initial public offerings were, for example, tripling in their first day of trading. “We don’t have that now.”

Birinyi has been in raging bull mode over the past eight or nine years. He made his call for a S&P 500 SPX, -0.02% at 2,500 back in June.

To be sure, two years ago, he also said the S&P 500 would hit 3,200 by 2017. Although, there is a chance of that, it is a very long shot. It would require a nearly 30% rally in the next 100 days to achieve that. So far, the S&P 500 has rallied an impressive 12%, the Dow Jones Industrial Average DJIA, -0.05% has gained more than 13% year to date, while the Nasdaq Composite COMP, +0.01% boasts a year-to-date return of nearly 20%.

Still, Birinyi’s nearer-term calls have been mostly spot on.

Moreover, he may offer the most clearheaded bull mantra in the industry: “Stay in the market and make sure that you know exactly what you own and why you own it.”

The investor’s verve for equities is currently supported by the belief that there’s a lot of cash sloshing around in the system that hasn’t yet been put to work and will likely help Wall Street equities scale new heights in the coming months.

“The one thing people have missed and its one of the most critical issues of this whole rally—and that is cash,” he said.

“So, to me you still have a lot of money looking to make money. if you are on the trading desk of Goldman Sachs, you are under pressure to make money” over the short term, he said.

“I contend that there is a lot of cash in non-macro mutual funds and trading desks under pressure,” Birinyi said.

Although he doesn’t specify how much cash is waiting to be put to work, a mid-September report from Bank of America Merrill Lynch said cash balances are lofty.

“Cash levels remain elevated, suggesting markets can remain in an Icarus upside mode for risk assets,” said Michael Hartnett, chief investment strategist at BAML.

The Icarus trade refers to BAML’s believe that markets would head higher on the back of hope of fiscal stimulus from President Donald Trump until those hopes fade, placing stocks in position for a significant tumble.

Although Birinyi dismisses many of the market bears, he says one of the unknowns that keeps him awake nights is tensions over North Korea.

Birinyi said he gets concerned about “things that I don’t understand, one of which is Korea.”

On Thursday, President Donald Trump issued an executive order to cut off revenue North Korea uses to fund development of “the deadliest weapons known to humankind.” The measure comes after a number of ballistic missile tests that have heightened geopolitical tensions in the Korean Peninsula.

Although the market has been mostly dismissive of the most recent threats from Pyongyang, Birinyi believes they could be an underappreciated X-factor.

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“We think the market is going to continue higher, and we are taking small steps because there are more moving parts than there were five yeas ago,” he said. Those include Korea, shifting political tides in Washington and the Fed, to name a few.

As for investors like Jim Rogers of Roger Holdings, who is forecasting an epic near-term market meltdown because assets are overvalued, Birinyi bristles. “He’s said the same thing the last 5 years.”

http://www.marketwatch.com/story/wall-street-vet-who-called-sp-to-hit-2500-says-stock-market-is-headed-higher-2017-09-21

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