S&P to go to 1620-1650 in 2013

Business Insider had some nice slides where several gurus showed their chart of the year. The above of Matt King shows how the S&P500 marched up with the balance sheet of the FED. A $1000 billion QE was enough to get the S&P500 320 points higher.

It is not at all clear how much Money the FED will throw to the markets in 2013. they promised $85B each month for the time being, less is not possible with current fiscal spending cliff uncertainties. But what to do when the economy recovers in H2, or worse when the confidence in the FED to prevent inflation will go down? Then QE will stop. For the time being it is estimated that the FED will buy between $500B and $1000B. Let us say $750B, then the S&P could rise 240 points to about 1650.

This chart of Kleintop showed how well the S&P tracked the average presidential cycle of the last 28 years. This could continue and should mean about 15% for the S&P in 2013, or about 1620 for the S&P500.


15% in the first year of a president is more than average since WWII (there were several nasty bear markets in the first six/seven quarters of a president cycle) , but maybe it is possible with the of Bernanke. Profit growth will be much lower in 2013 but expectations for 2014 could improve.

So 1620-1650 is an educated guess according to the president and monetary cycle.

10 forecasts for 2013

The intention is to give forecasts for possible trends that are underestimated by the market according to us.




1. After a weak H1 US economic growth will surprise to the upside (3%+). 3.5-4% growth in 2014 very well possible.

2. According to expected QE and the president cycle of the last three decades the S&P500 should rise to 1620-1650. This could very well be the case even while the market will be more volatile than in 2012 with the possibility of a nasty shock that could bring a correction of more than 10-15%.

3. Spain could surprise to the upside later in 2013. France not becoming the disaster as many are saying. Portugal could very well be a big new worry in Europe.

4. Fight the FED. After some time the FED could very well become under pressure because of too much QE without (horrible) exit scenario. After H1 core inflation could start to rise because of higher unit labour costs and higher rents. The market will fear that inflation will be earlier than 2015 above 2.5% and earlier than unemployment below 6.5%.

5. Japan will see its reverse Volcker moment: deflation will turn into inflation and after 2014 in too much inflation. Initially this will be seen as good news for Japanese equities and bad news for the yen.

6. Emerging Markets the place to be for equities in 2013. Confidence is returning in China. Brazil and India will surprise to the upside. Inflation will not be a problem in most countries causing more monetary easing by central banks.

7. UK credit rating to be downgraded. AAA rated government bonds to become more scarce (less AAA rated governments and declining deficits of AAA countries).

8. Credits will suffer from more downgrades and defaults than in 2012. Inflows from investors will go down and demand from borrowers up. This contrasts with 7.

9. The deflationary thinking since the credit crisis will move to inflationary thinking. This means the correlation between equities and government bonds will become clearly less negative, maybe about zero. (=The FED model could come back as good indicator for equities in 2014).

10. The Great Transition from lower and lower long term bond yields (1981-2012) to decade(s) of higher and higher bond yields will start. 30 year euro zone swap yield to go up above 2.7%, maybe above 3%. 30 year bond yields in US to go to 4%.