Large-caps will shatter earnings record in 2012: ING big

Earnings per share of S&P 500 to reach eyepopping $115, says Cote: 'investor sentiment a contra-indicator'

By Jeff Benjamin

Dec 27, 2011 @ 3:09 pm (Updated 3:16 pm) EST

The dark economic clouds hanging over much of Europe have pushed down investor confidence in the United States, according to the latest report from State Street Global Markets. Not everyone, though, buys into the notion that now is the time to get conservative.

The monthly analysis, which calculates the mood of institutional investors based on buying and selling activity, found that confidence among North American investors fell by 2.1 points in December to 96.4.

A measurement of 100 is considered a neutral position, with anything above 100 considered bullish.

European investors, meanwhile, apparently saw the developments of the past month as a sign of progress, because that subcategory of the confidence index rose by about a half a point to 102.2.

The Asia-Pacific category declined by one point to 93.7, rounding out the global index calculation of 99.3, down one-tenth of a point from November.

The subtle changes in December indicate that investors are in a “holding pattern,” according to Harvard University professor Kenneth Froot, who helped develop the index for State Street Corp.

“The [Dec. 9] meeting of European policymakers did not address the overarching questions in the minds of global investors, and they are likely looking forward to the first quarter of 2012 for greater clarity on the prospects for risk allocations in their portfolios,” he said.

Though some see dark clouds, however, others see silver linings and golden opportunities in 2012.

Doug Cote, chief market strategist at ING Investment Management, said if investors are feeling pessimistic about the markets, they are missing the picture presented by the fundamentals.

“Things are a lot better than most people think, because the fundamentals press on despite the global risk that's out there,” he said.

Over the past 30 days, as investment sentiment sunk, the S&P 500 gained almost 9%.

“Right now, investors seem very frightened of the wrong things,” Mr. Cote said. “I think of investor sentiment as a contraindicator.”

For example, he pointed out that the expected final 2011 tally for the S&P 500 Index ($98) will shatter the current record set in 2007, when the index earned $88 per share.

“Our forecast is for $105 per share in 2012,” Mr. Cote said.

As part of a 7% increase in earnings, he is also calling for a 12.5% gain by the S&P next year to 1425.

Even at that level, Mr. Cote said, the benchmark equity index will be a better value than it was at its peak in 1999 — when it hit 1460 and earned $39 per share.

“The level of corporate profits is at an all-time high and the S&P is still at 1267, and that's why you need to be in equities,” he said. “The fundamentals have been marching forward in relentless fashion because the real economy could care less about the European debt crisis.”