The chattering classes are full of talk this week that U.S. stocks are overvalued, but not so fast says Morgan Stanley analysts led by equity strategist Adam Parker.
In a commentary obtained by MarketWatch
, they say the S&P 500 index might climb 1,000 points by the end of 2018. The index hit a record 2,101.30 Tuesday.
"We continue to think that hubris and debt define the top of every cycle and that these are unlikely to become problems this year," Parker said, according to MarketWatch.
He and his colleagues see room for inventories, merger activity and corporate spending to rise from below-average levels, thus boosting stocks.
In addition, "the dividend yield of the S&P 500 is well above nearly all government bonds, and payout ratios are quite low versus history," Parker explained. "This, combined with buybacks of more than 2 percent net of issuance for the S&P 500 this year, ought to be a strong positive for equities."
The S&P 500 dividend yield stood at 1.96 percent Thursday, compared with 1.84 percent for seven-year Treasurys.
"Our current allocation is overweight consumer discretionary and energy, underweight consumer staples, industrials and utilities," Parker noted.
Nobel laureate economist Robert Shiller doesn't share Parker's bullishness. The Yale professor says he's considering a move to European stocks from U.S. stocks because of cheaper valuations overseas.
The MSCI Europe index had a trailing price-earnings ratio of 17.37 as of Jan. 31, compared with 20.44 for the S&P 500 Feb. 13.
"I'm thinking about getting out of the United States somewhat. Europe is so much cheaper," Shiller, who has about half his portfolio in stocks, told CNBC
Already he has invested in market indices in Italy and Spain. The FTSE MIB Index of Italian stocks has returned 13.7 percent so far this year, and the IBEX 35 Index of Spanish stocks has returned 6.4 percent. The S&P 500 has returned 2 percent.
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