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Pimco's Gross: Stocks Will Rise 5% to 6% in 2013

By Dan Weil   |   Wednesday, 06 Feb 2013 11:07 AM

Bill Gross and his colleagues at fund giant Pimco are mildly bullish on stocks.

“We aren’t a two-eared, one-tailed bull like in Spain, but perhaps one ear,” Gross, co-CIO of Pimco, tells CNBC. “We think the market can go up 5 to 6 percent. It’s done that already in January. That's a decent return and a bullish statement going forward.”

The Standard & Poor’s 500 Index soared 5 percent last month.

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The money going into stocks hasn’t come out of bonds, Gross says. Pimco itself saw a $20 billion inflow to bonds during January.

“We think it’s coming from money market funds, capital gains and accelerated dividend payments from last year.”

Gross famously said last summer that “the cult of equity is dying,” and he doesn’t back off that statement, though his logic sounds a bit tortured.

First, he says January is a “one-month type of thing” for stocks. Then he says, “The cult of equity isn’t a downer in terms of returns but a downer in terms of the willingness and ability of demographic influences to present a change to stocks.”

Gross goes on to say that aging baby boomers will be more attracted to bonds than stocks. It seems a bit odd that the dying cult shouldn’t be expected to push returns down.

In any case, Gross says investors will hesitate to buy stocks after being burned by several market plunges over the last 13 years.

As for bonds, Gross says stay away from the long end of the market. “Going back to last July, we saw the beginning of the bear market and long bonds.” The 30-year Treasury has dropped about 15 percent since then.

“We suggested over that entire period of time, don't own long bonds,” Gross says. Instead, he recommends going for the bonds of Mexico, Brazil, Italy and Spain — “something with higher yields and more defensive protection relative to price.” Those bonds could earn investors returns of 3 to 4 percent, Gross says.

The current credit expansion is going to end in a contraction that restricts economic expansion, Gross says. He and his Pimco colleagues anticipate U.S. economic growth of 2 percent in the next three to five years.

Many other investment strategists join Gross in his optimism on stocks.

Strong profits will push the S&P 500 to 1,600 by year-end, according to Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America.

That would represent a 6 percent gain from 1,507 in Wednesday morning trading.

"Until we see a real degradation in earnings, that would cause concern, but they have been consistently growing," Subramanian tells CNBC. "This is a sign that what we're seeing is real."

Jim Paulsen, chief investment strategist at Wells Capital Management, is even more bullish. He thinks the S&P 500 can climb as high as 1,700 this year.

The economy should beat the consensus forecast for 2 percent growth in 2013, Paulsen tells Yahoo. Also, “confidence continues to rise. There’s a sense that more things are working — housing, falling unemployment, lending.”

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Bill Gross and his colleagues at fund giant Pimco are mildly bullish on stocks.

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