Where to Invest Now - Breaking the range

• Economy. Macro data has been better than expected. GS Global Leading Indicator (GLI) improved for 3rdconsecutive month and momentum for 5thstraight month.
  
• Earnings. Our S&P 500 operating EPS estimates are $52 for 2009 and $75 for 2010. Our estimates on a pre-provision and pre-write-down basis equal $69 and $81.
  
• Valuation. Our year-end 2009 fair value equals 1060 based on our DDM framework.  Other approaches (Fed Model, P/E mean reversion) point to valuations above 1400.  S&P 500 has surged 40% from March low and trades at 12.5x our 2010 operating EPS.
  
• Money Flow. Mutual funds (23% of market) bought stocks in March, May and June, while hedge funds (2%) covered shorts in April. Pension & retirement funds (19%) remain underweight equities. Money market assets total $3.3 trillion, 44% of S&P 500.

>> Where to Invest Now - Breaking the range  July 21, 2009 [PDF, 502 KB]