US equities 'will increase 10pc this year
'Abby Joseph Cohen, the chair of Goldman Sachs' investment policy committee, said the S&P 500 will achieve "a rise of about 10pc from current market levels".
By Malcolm Moore, Economics Correspondent (Filed: 15/01/2005)
China will achieve a soft landing, the US budget deficit has peaked and the US stock markets are set for a bumper year, a leading Wall Street bull said yesterday.
Abby Joseph Cohen, the chair of Goldman Sachs' investment policy committee, said the S&P 500 will achieve "a rise of about 10pc from current market levels".
Abby Joseph Cohen: expects strong growth in the IT sector
Ms Cohen, who has also said the Dow Jones index will end this year at a lofty 11,800, said solid company balance sheets and favourable economic conditions would drive growth. She expects strong growth in the IT sector.
Meanwhile, the dollar rose more than a cent against the euro and the pound after William Poole, the president of the St Louis Federal Reserve, said policy makers could abandon their plan to raise interest rates at a "measured" pace. The dollar hit $1.8684 against sterling, and $1.3097 against the euro.
Ms Cohen said she expected US interest rates to "rise to 3pc, which the Fed sees as a normal level, by the middle of the year". She also said bond yields would improve, although "there will not be a switch into bonds".
She added that the US equity markets would be relatively untroubled by future dollar declines, which are "more likely to be problematic for US fixed income than for equities, of which only 11pc is owned by foreigners".
She also said the US budget deficit "will peak in 2004. That is still the forecast. What we do know is the deficit will be getting smaller. However we do not know what is going to happen with regards to changes in legislation."
The US trade deficit, a more important factor in dollar weakness, remains problematic, although it is helpful for US equities in the short term. She said the problem lay with stagnant demand in Europe. "Our deficit with Europe is $110 billion, when we used to have a surplus."
Goldman Sachs also believes "very strongly" that the Chinese will achieve a "soft" landing. The investment bank has a 5pc to 8pc target rise in value for the renminbi against the dollar as the Chinese government attempts to cool the economy. Ms Cohen said such a rise would have a minimal impact on the US economy, since 35pc of Chinese imports come from US owned subsidiaries.
She also offered an explanation for the outperformance of midcap companies. In the UK, the FTSE 250 index charted fresh four-year highs yesterday, and in the US the Russell 2000 index has outpaced the S&P 500.
"When the bull market retreated in 2003 smaller companies looked cheaply valued. Since there has been very low volatility, which has been running at 10pc versus a historical average of 16pc. Some portfolio managers are looking to add a little pizazz by buying these stocks," she said.
Andy Brough, whose UK Mid 250 Fund at Schroders has achieved a 66.7pc return in the last five years, echoed her view. "With investor appetite for risk initially increasing in the middle of last year, these companies outperformed," he said. |
