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Friday, August 14, 2009

Elaine Garzarelli Gives Market Targets On Kudlow Report

Yesterday Elaine Garzarelli gave her market outlook on Larry Kudlow's program, "The Kudlow Report." This article summarizes her key points, shows the whole video interview then lists what it would take to turn her bearish.

Elaine Garzarelli's Key points:
  • Household formation data through 2015 will be very strong due to demographics. This same thing happened in 1983, the beginning of the last great bull market.
  • She is buying Retailers. She would play Walmart because it has lagged the whole market.
  • Elaine likes the industrials because the whole sector has lagged.
  • She also likes financials and technology. Both require a gain of over 200% to get back to where they were.
On what would turn her negative, she said she would short the market if FASB imposed new "mark-to-market" rules on the financials. She says that was the reason "everything happened to begin with."

Developed countries like Europe are "the next to go" since they lag the US markets in the recovery.

On Bonds, Elaine thinks we will have low inflation for a long time. Capacity utilization rate is 68%. The Fed doesn't normally tighten until it gets to 80% and they don't usually tighten until a year after a recession ends.

She thinks we could get a correction of 10 to 15% if/when short-term rates get up near the S&P500 dividend yield of 2.5%.

She thinks the S&P500 can go much higher
  • Has 2010 S&P500 earnings of $73
  • said apply a 17.5 multiple for her target
$73 x 17.5 = 1,278
S&P500 Charts

Best earnings will come from consumer discretionary and materials. She likes materials, aluminum, paper, infrastructure (industrial) for the next six to twelve months.

Garzarelli interview starts at 2:30 on the video.

Airtime: Thurs. Aug. 13 2009 | 4:48 PM ET

Biggest risks to the market are if:
  • BAA bond yield goes up and interest rate spreads widen
  • the Fed raises rates close to the S&P500 dividend yield
Elaine thinks a sideways or 4 to 7% correction at any time but nothing more.

Current Market Statistics:


Past Reports:

click chart courtesy of for full size image

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