Buying Amid the Plunge, Bulls Keep the Faith

Worries about Greece, they say, won't derail the long rally

By Whitney Kisling and Lynn Thomasson

As they ponder their next moves, many investors are worried about the crisis in Greece, job creation, and the little matter of the 1,000-point stock market drop on May 6. None of that has shaken the belief of some big professionals that the U.S. bull market is intact, and stocks are headed higher.

Birinyi Associates, the research and money-management firm founded by Laszlo Birinyi Jr., bought shares on the day of the 1,000-point drop in the Dow Jones industrial average (the index closed that session with a 348-point loss). The firm has stuck with its forecast that the Standard & Poor's 500-stock index will climb 13 percent from the May 12 close of 1172 to 1325 this year. "Almost all bull markets have a correction at some point, and that point could be now," says Jeff Rubin, director of research at Birinyi Associates. "That doesn't change the outlook for the year."

Barton Biggs, who runs New York-based hedge fund Traxis Partners, says he is "betting the next move in the U.S. market is going up 15 to 20 percent." Biggs recommended buying U.S. stocks at the low last year. "I would just point out that the world is having a strong economic recovery," he says.

On the day of the big drop, Thomas Lee, chief U.S. equity strategist at JPMorgan Chase (JPM), reiterated his forecast that the S&P 500 will end the year at 1300. Among the equity strategists tracked by Bloomberg, Lee and Goldman Sachs' (GS) David Kostin were the most accurate in predicting the market's 2009 gain.

Not everyone is quite so sanguine. "We're inclined to think this is a much deeper problem than has been fully discounted in the market so far," says Bruce McCain, chief investment strategist at Key Private Bank. "The market had been shoving aside any concerns...to the point where we reached the stage of too much optimism."

McCain says the losses won't undo the S&P 500's 73 percent advance since March 2009. As the U.S. economy expands and banks, brokerages, and insurers recover, profits for S&P 500 companies are forecast to jump 34 percent this year, the most since 1988. Earnings from continuing operations may reach $95.56 a share in 2011, exceeding the 2007 record, according to estimates of analysts tracked by Bloomberg. "We'll get a sharp correction," says McCain, "but I don't think this spells the end of the bull market."

Even the pros who say stocks will continue to climb don't expect a smooth ride. "This is going to be messy," says Stephen Wood, chief market strategist for Russell Investments in New York. "It's going to be a grinding slog of an environment."

The bottom line: After the market's strong recovery from its March 2009 low, a few rocky days aren't enough to convince bulls that the rally is over.

Kisling is a reporter for Bloomberg News . Thomasson is a reporter for Bloomberg News.

Business Exchange

Track and share business topics across the Web.