Credit Suisse Reverses Preference for Bonds, Favors Equities
Credit Suisse Group AG switched its preference for government bonds in favor of stocks and raised its estimate for the Standard & Poor’s 500 Index by 14% to 1,050, citing improving economic indicators and earnings. Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” reversing a decision made in June, according to London-based global strategist Andrew Garthwaite. The VIX and investment- grade corporate bond spreads have returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told clients in a note today. Valuations on equities are “not expensive” and consensus estimates for earnings in the US are now being increased, something which precedes a rising stock market in the subsequent two to three months, he wrote. “Bonds no longer look attractive,” Garthwaite wrote. We expect “a positive macro surprise in the second half of the year. We believe that we are halfway through the first ‘V’ of an upward sloping W-shaped recovery, with a likely peak in the early Q-4.” Goldman Sachs Group Inc.’s David Kostin yesterday increased his estimate for the S&P 500 index, saying the benchmark for US equities will advance 15% from its June 30 level to 1,060 on Dec. 31, an increase from his prior projection of 940.