Equity analysts at Standard & Poor’s (S&P) say paying too much heed to bears could lead investors to miss out on an equity recovery.
“In the coming 12 months we could see a double digit increase in terms of share price,” says Sam Stovall, chief investment strategist at S&P.
Stovall says much of the bad news was already priced into the market, so while the economic recovery is likely to be sluggish, avoiding worst case scenarios is already showing signs of boosting equity markets.
His views are supported by Alec Young, an international equity strategist at the firm, who says while pessimism on the global economy paid off last year, bearish sentiment from investors is already causing them to stay off of surging equity markets.
“The bears are focusing too much on the weak recovery story, but we think if there is any recovery you can justify high single digit or low double digit returns from equities,” says Young.
One factor that may be a drag on economic recovery in developed markets, however, is the apparent lack of a bounce in consumer spending. While some commentators claimed last year the American consumer should never be underestimated in their ability to “spend their way out of a recession” it appears this was not the case with the current crisis.
“The problem is that the consumer isn’t out spending his little heart out as he was in previous recessions,” says David Wyss, chief economist at S&P. “We expect savings rates to stay high relative to their recent past. Consumer spending is going to trail GDP growth, which means GDP growth will remain sluggish.”