While the coming fiscal austerity in developed nations may curtail economic growth, it won’t hurt stock markets, many experts say.
That’s because it won’t be enough to pull economies into recession and will ultimately be a positive, they argue.
Indeed, the Standard & Poor’s 500 Index will likely soar 31 percent to 1,350 in the next year as investors realize the recovery is on track and profits are rising, David Bianco, head of U.S. equity strategy at BofA Merrill Lynch, told Bloomberg.
“Many investors think we won’t see that high for another decade or so, and I think that’s incorrect,” he said.
“What we see is corporate profit growth in a very low-inflation, low-interest-rate environment.”
Industrialized nations will cut their primary budget deficits, excluding interest payments, by 1.6 percentage points next year, the most since Organization for Economic Cooperation and Development data began in 1970, according to JPMorgan Chase economists.
They say that contraction will take 0.9 percentage point off growth in 2011.
The implication for stocks?
“Right now, we’re in the worry season,” Bianco said. “I look forward to moving into the earnings season.”
Still, many investors remain skeptical about stocks.
"The fundamental outlook is questionable, and most of the government policies haven't been helpful in terms of solving the unemployment problem," Derwood Chase, head of Chase Investment Counsel, told Dow Jones.
"We've got a lot of serious problems."
© 2015 Newsmax Finance. All rights reserved.