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Blackstone’s Wien: S&P 500 Poised to Hit 1,500 By Year-End

Wednesday, 17 Oct 2012 07:52 AM

The Standard & Poor’s 500 broad stock index will likely hit 1,500 by year-end, thanks to a strengthening economy and not just because of monetary stimulus, said Byron Wien, vice chairman of Blackstone Advisory Partners.

The S&P 500 is currently trading around 1,450.

The economy grew 1.3 percent in the second, though expect economic activity to pick up and bring the S&P 500 up with it.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“You’re seeing it, the performance of the market today is in response to greater cyclical strength, the economy is doing better,” Wien told CNBC.

“We had three quarters of below 2 percent growth. We’re going to grow better than 2 percent in the fourth quarter. And we’ll see whether that stretches into 2013.”

Stock prices have risen in recent years despite a sluggish economy, thanks in part to Federal Reserve stimulus measures.

The Fed recently announced plans to buy $40 billion in mortgage-backed securities held by banks every month until the economy and labor market improve, a monetary policy tool known as quantitative easing (QE).

The announcement marks the third time the Fed has rolled out QE measures to jolt the economy since the 2008 financial crisis, with the first round seeing the Fed snap up $1.7 trillion in mortgage securities and the second round seeing the Fed buy $600 billion in Treasury securities held by banks.

QE aims to stimulate the economy by injecting the financial system full of liquidity via bond purchases that push down interest rates to encourage investing, job demand and stock market gains.

“A big part of that monetary expansion is going into the stock market,” Wien said.

But corporations will show some strength on their own.

“Right now, people are worried about earnings deceleration. Maybe it won’t be that bad,” Wien said, adding that third-quarter results might disappoint, but the fourth quarter will improve.

While monetary policy is propping up stocks, a fast-approaching fiscal cliff could wipe out gains and send the economy contracting.

At the end of this year, a series of tax breaks are scheduled to expire at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country sliding into a recession if left unchecked by Congress.

“I think the big issue is the fiscal cliff,” Wien said. “The fiscal cliff, if taking it all in is over 4 percent of GDP in an economy growing at 2 percent, so if all of it kicked in at once, we would go from a shallow growth into a recession.”

Even if Congress finds away to steer the economy away from the cliff, a compromise could involve changes to tax and spending policies that could shave about a percentage off growth rates, but not tank the overall economy.

“Some part of it will go in — I think something like 1 percent to 1.5 percent, so it’ll still slow down the growth.”

Housing, however, could save the day.

“The big positive next year is going to be housing,” he noted. “Housing is the one factor in this cycle that hasn’t played a positive role.

“I think it’s bottoming this year and it will be a positive next year.”

CEOs and financial leaders are urging Congress to steer the country away from the fiscal cliff, as the global economy could suffer.

Failure to reach a compromise after elections or even early in 2013 could make Congress look worse than it did in August of 2011, when it waited until the last minute to raise the government’s debt ceiling, which prompted Standard & Poor’s to strip the country of its coveted AAA rating.

“When the world looked at Congress, who was paralyzed and couldn’t make a decision, it shook up the economy,” said Nasdaq OMX CEO Robert Greifeld, according to Bloomberg.

“A bigger day is coming.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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The Standard & Poor’s 500 broad stock index will likely hit 1,500 by year-end, thanks to a strengthening economy and not just because of monetary stimulus, said Byron Wien, vice chairman of Blackstone Advisory Partners.
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Wednesday, 17 Oct 2012 07:52 AM
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