June 8, 2010 / 8:39 PM / 7 years ago

Birinyi's Rubin sees sharp rally in U.S. stocks

<p>Birinyi Associates' director of research and senior portfolio manager Jeffrey Rubin speaks at the Reuters Investment Outlook Summit in New York, June 8, 2010.Brendan McDermid</p>

NEW YORK (Reuters) - The U.S. equity market is nearing a bottom after its recent fall, said Jeffrey Rubin, director of research at Birinyi Associates, told the Reuters Investment Outlook Summit on Tuesday.

Birinyi's year-end target for the S&P 500 is 1325, and Rubin says that level is still achievable, which would require a 25 percent rally.

Equity markets have tumbled around the globe as fears of an economic slowdown in Europe and Asia combined with weak U.S. labor market data have gripped investors. The broad-based S&P 500 is down around 13 percent since a peak in late April.

But Rubin said he still favors U.S. equities over other assets class. He said the chances of a bear market for the S&P 500 are low because market fundamentals remain strong and the chance of the U.S. economy suffering another recession are slim.

"Manufacturing is picking up, retail sales are picking up," said Rubin. "Double dips are very rare, very rare; it's happened once in the 1980-81 period -- anything is possible but we don't at all subscribe to it."

Technical market indicators suggest a near-term bounce, Rubin said. The index sits 3 standard deviations below its 50-day moving average, an indicator that investors use to judge whether the market is oversold. In addition, stocks are trading at around 12 times their earnings, lower than in some past bull markets.

"We're market-oriented, so we think there's no better indicator than the market itself," said Rubin. "If you look at Coach (COH.N), Tiffany's (TIF.N), Ralph Lauren (RL.N), Home Depot (HD.N) or Lowe's (LOW.N) ... these aren't experiencing growth because of stimulus money."

Rubin said that in the middle phase of a bull market stock picking is more important than in the early stages when a rising tide lifts all ships. He highlighted Ford Motor Co (F.N), Best Buy Co Inc (BBY.N) and Caterpillar Inc (CAT.N), and Apple Inc (AAPL.O) as stocks that would do well in recovering economy.

Birinyi's S&P 500 forecast will be evaluated throughout the year. Rubin said factors that may cause him to reduce it would include a break down in leading stocks like Apple, a deterioration in the economy, money flows out of the market, or a significant change in sentiment.

"A couple of days ago Apple was up 8 points, Google was up 15 points," he said. "If you start seeing the internals of the market get weaker that's one of the things that would lead us to reduce our estimates," he said.

Reporting by Edward Krudy

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