Market Watch

[Joemoney]

Invesco Vice President Expects S&P 500 To Hit 1400 By Year's End

By: Tom Locke, Of DOW JONES NEWSWIRES

DENVER -(Dow Jones)- Invesco Funds Group Inc. Vice President and economic forecaster Fritz Meyer outlined a bullish outlook that includes a view the S&P 500 Index will rise roughly 20% and hit 1400 by the end of the year.

Driven up by an economic recovery that will boost corporate profits, stocks will see an influx of investment from cash that's now on the sidelines, Meyer told attendees at a Thursday luncheon presentation sponsored by the Denver Society of Security Analysts.

That cash is waiting in the form of money market funds. Toward the end of 2001, money market funds as a percentage of stock market capitalization reached more than 20%, their highest point of the last 14 years, he said.

"Fourteen hundred makes sense to me (for the S&P 500)," Meyer told Dow Jones Newswires after his presentation. He said that stock prices of 21 times 2003 earnings would mean a boost in the S&P to 1400.

He expects the Dow Jones Industrial Average to move more or less in line with the S&P 500, and the Nasdaq Composite Index to move up more than 20% by year end because its moves tend to be more extreme than the S&P 500.

Of course, Meyer has been wrong before. At a TD Waterhouse conference in Denver in June, he told attendees that he expected the S&P 500 Index to rise 20% and hit 1500 by the end of 2001. The index ended 2001 at 1148, down 172 points for the year.

Meyer told Dow Jones Thursday that he was correct in June in predicting a mild recession, but his projection on the S&P 500 was upset by a more severe profits recession than he expected and by the terrorist attacks of Sept. 11 .

If it hadn't been for Sept. 11 , he still believes April of last year would have been the bottom for the market, he said. Now he thinks the market hit bottom on Sept. 21 .

Meyer is particularly bullish on stocks, versus other investments, noting they have outperformed over 200-year, 25-year, and rolling 5-year time lines. If $10, 000 were invested in stocks in the S&P 500 Index in December 1975 , it would have been worth $427,515 by December 2001 , versus $125,551 for long-term corporate bonds and $57,600 for Treasury bills, according to Meyer. Inflation during that time would have translated the $10,000 to $34,110.

Signs Of Economic Rebound Plentiful

Among recent positive signs for the economy are manufacturing indexes moving into expansion territory, job growth recorded in February, no slowdown in consumer spending, an inventory-to-sales ratio that's the lowest in two years, growth in real disposable income, a recent fiscal stimulus package and lower oil prices, said Meyer.

The drop in gasoline prices over the last two months has resulted in $35 billion in increased purchasing power, he said, which is greater than the $27 billion loss in purchasing power that would result from the loss of a million jobs.

And there's the impact of lower interest rates. "The market has never not responded to Fed rate cuts," Meyer said.

While the unemployment rate is still high, unemployment figures lag what's happening in the economy, he added.

Taking all that into consideration, Meyer expects gross domestic product to start growing at a 3% to 4% rate in the "not too distant future." That would be getting back to the average of 3.5% growth the U.S. has experienced sine 1950, he said.

Meyer discounts talk of a double-dip scenario in which the U.S. would emerge from recession and then fall back in. Because of improved inventory management and the decline in importance of cyclical manufacturing and agriculture, the U.S. has been in recession less than 10% of the time in the last 25 years, compared with 40% of the time between the Civil War and the end of World War II, he said.

He also is encouraged by the global evolution toward more trade and by demographics. With the peak year for baby boomers having been 1961, peak-year babies are now about 40 years old and have 25 years before the retirement age of 65. Plus, a study of baby boomers two years ago showed 80% don't expect to retire at 65 anyway, he said.

With an economic recovery, corporate profits will jump back dramatically even with only a modest increase in revenue, he said, noting that productivity has remained high.

Meyer also expects technology stocks to perform well this year. He believes businesses have installed only half the technology they need to and that they'll invest in technology to raise profits through greater productivity.

"The spending numbers on tech equipment have already turned," Meyer said.

As portfolio manager of the Invesco Growth & Income Fund - which is among the funds under Amvescap (NYSE: AVZ - news) PLC (AVZ) - Meyer likes certain stocks in tech areas such as servers, switches, software and storage. They include Cisco Systems (NasdaqNM: CSCO - news) Inc. ( CSCO), EMC Corp. (EMC), Sun Microsystems (NasdaqNM: SUNW - news) Inc. (SUNW), Oracle Corp. (ORCL), Siebel Systems (NasdaqNM: SEBL - news) Inc. (SEBL) and BEA Systems (NasdaqNM: BEAS - news) Inc. (BEAS), he said.

-By Tom Locke, Dow Jones Newswires; 303-293-9294; [e-mail]

(This story was originally published by Dow Jones Newswires)

http://biz.yahoo.com/djus/020315/200203151750000627_1.html