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Abby Joseph Cohen: Stock Market Run Is ‘Real’

By Dan Weil   |   Friday, 01 Mar 2013 12:06 PM

The stock market’s surge to five-year highs isn’t a flash in the pan, says Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs.

“This rally is real, because it’s supported by improving fundamentals in the U.S. economy and, very importantly, valuation,” she tells CNBC. “[With] equities at 14 times earnings, they’re just not expensive.”

Cohen pegs fair value for the Standard & Poor’s 500 Index at 1,575, or 4.4 percent above where it stood early Friday – 1,509.05. Other models, including the Federal Reserve’s, put fair value as high as 1,700 or 1,750, she says.

Editor's Note:
Billionaires Dump Stocks. Prepare for the Unthinkable.

A lot of cash still sits on the sidelines — belonging to both investors and companies, Cohen notes, adding that investors would do well to shift from long-term bonds to stocks.

Cohen expects the Federal Reserve to keep interest rates low for “a long time.” Of course, if the Fed raises rates in a “dramatic and sudden” fashion, stocks could get hammered, she maintains.

But even in a rising-rate environment, stocks fare well for a time, reacting to the economy’s improvement, Cohen says.

“We believe that on the intermediate and long-term basis, which is what most investors should be focusing on, you really need to look at the fundamentals and the valuation. And they remain in good condition,” Cohen explains.

“We don’t see recession returning in the United States. We think this is going to be a long-lasting economic expansion,” she adds.

Byron Wien, vice chairman of Blackstone Advisory Partners, takes a different view. He says investors are ignoring negative signs for stocks.

“The economy is going to disappoint. Earnings are going to disappoint,” Wien tells CNBC. The combination of the sequester and the payroll tax hike will put a damper on the economy, restraining government and consumer spending, Wien says.

On the profit side, “revenue growth will be modest, and some costs will increase, so I think earnings estimates will be trimmed down,” he says.
Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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