Tags: Citigroup | Stocks | Rise | Stall

Citigroup: Stocks Will Rise 15 Percent, Then Stall

Wednesday, 24 Feb 2010 04:35 PM

By Dan Weil

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The stock market will likely gain 10-15 percent in coming weeks before it stalls out, says Citigroup’s chief equities strategist, Tobias Levkovich.

Buoyant earnings and economic recovery will fuel the move, he told CNBC. The stock market’s current levels reflect virtually no gain in earnings, he maintains.

But the stock rally will fizzle as the Federal Reserve continues to withdraw its monetary stimulus, Levkovich says.

So the Standard & Poor’s 500 Index could reach 1,250 before ending the year at 1,175, up about 7 percent from currency levels.

Already the Fed has boosted its discount rate by 25 basis points to 0.75 percent. And the central bank plans to end its $1.25 trillion purchase of mortgage securities by March 31.

"The Fed has used extraordinary measures to put liquidity into the system," Levkovich told CNBC.

"We use the mortgage-backed securities program as a very clear indication. They told us they were going to stop doing that.”

Historical patterns indicate the stock market’s upside is now limited, he said.

"If you look at the year after recessions end, earnings have gone up double digits. But the market only goes up single digits, as the Fed removes accommodation."

Barton Biggs, managing partner at hedge fund firm Traxis Partners, also sees stocks rising soon.

“There is every reason to believe the U.S. is in a strong recovery. . . . On balance, I’m pretty bullish here,” he told Bloomberg.

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