Birinyi rides the bull, sees S&P 500 soaring to 1,700 by 2012

Double-dip recession? Lack of aggregate demand? Don't tell that to institutional investor Laszlo Birinyi. The founder of Birinyi Associates, a money management and research firm based in Westport, Connecticut, said Monday he's still very optimistic. "The markets are suggesting that the economy has turned the corner and is going to do a lot better than most people anticipate," Birinyi told Bloomberg News on Monday.

In May, Birinyi predicted that the S&P 500 will soar to 1,700 in the next two to three years: a roughly 66 percent gain from its current level of about 1,030. The index has rallied about 15 percent since Birinyi's May forecast. The S&P 500 is up more than 52 percent from its 12-month low, recorded in March.
During the same period, the Dow Jones Industrial Average has risen about 13 percent, from about 8,450 to the current 9,550 range. Birinyi said the benchmark S&P index may rise another 5.9 percent, to 1,087, in the next three months "if it continues to progress at the rate it's progressing."

Cites market breadth

One technical indicator ray of light for the markets, Birinyi says, concerns market breadth. "We're seeing an awful lot of breadth in the market, which tells me people are being a lot less discriminating in the market, and they're buying everything," Birinyi told Bloomberg Television. Monday. "It's a sign that people who have missed the train are starting to jump in." He added that he bought General Electric (GE), and also likes Google (GOOG), Apple (AAPL), and healthcare and retail stocks.

Birinyi, who traded on the renowned Salomon Brothers desk for more than a decade, is known for his breakthrough money-flow analysis. In October 2007, Birinyi warned that a recovery in banks would end, due to bad loans and lower revenue from underwriting: the prediction proved accurate, as the period marked the beginning of the global financial crisis.

While some experts counter with bearish outlooks -- New York University economist Nouriel Roubini cautions that substantial risk remains of a double-dip global recession -- as financial-system stabilization funds are removed, the weight of recent fundamental data appears to support bulls like Birinyi. Recent U.S. factory and housing market data show signs of a bottom, or even improving conditions; Q2 earnings reports among S&P 500 companies were not the disaster that many had foreseen. Equally significantly, S&P 500 corporate earnings guidance for Q3 -- considered a clue regarding near-term corporate performance -- was largely in-line with Wall Street's expectations.

This week's economic data also should gladden the hearts of the bulls. The best reports will likely occur on Wednesday, when the Commerce Department announces July durable goods orders, including appliances like washing machines, refrigerators, and ovens. Economists surveyed by Bloomberg News expect a 2.5 percent increase.

July new-home sales data will also be released on Wednesday, with economists surveyed expecting a two percent increase -- which would be the metric's fourth straight monthly increase -- amid additional signs of housing sector stabilization. Another potential positive for the markets: Tuesday's release of S&P/Case-Shiller Home Price Index data for June, which will continue to show a slowing of year-over-year home price declines -- historically, a sign that housing demand is picking up.

Market Analysis: Should investors be bullish or bearish? Under the thesis that no one ever made a dime waiting for economic conditions to be 99 percent safe for stocks, the argument is tipped in favor of the bulls. You should position yourself in stocks (or add to positions) consistent with your risk tolerance and investment time horizon. But if you wait for U.S. GDP to flash positive in Q4 or in Q1 2010, most cyclical stocks will have been bid up by another 15 percent to 20 percent, and in some cases, much more than that.
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