By Palash R. Ghosh
September 1, 2010 9:15 PM EDT
Standard & Poor's Investment Policy Committee said it has increased its recommended allocation to U.S. equities to 45 percent from 40 percent , while reducing the suggested bond exposure to 25 percent from 30 percent.
The Committee also raised its 12-month projected target price for the S&P 500 index to 1200 from 1190, implying an 11 percent advance from today's closing level.
“While we still think global equity prices remain vulnerable to near-term setbacks, and therefore maintain a defensive tilt to our recommended sector weightings, we believe equity prices will gradually work their way higher in the coming year as sluggish U.S. economic growth, combined with the avoidance of a double-dip recession, allows bond yields to rise as the U.S economy moves further from the deflationary precipice,” the Committee explained in a statement.
S&P continues to recommend a 15 percent exposure to foreign equities and another 15 percent to cash.
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S&P noted that just two weeks ago, the economic news was “downright dismal” as housing and employment data were much worse than expected. Last week’s results were “neutral” in as the lower second quarter U.S. real GDP report was still above Wall Street expectations.
“This week’s data has been more encouraging, however, as personal spending, the S&P/Case-Shiller index, Consumer Confidence, China's PMI and the U.S.'s ISM-Mfg. reports all showed positive results,” S&P indicated.
Looking ahead, S&P expects Friday's August non-farm payroll report to show a decline of 90,000 jobs, with the unemployment rate unchanged at 9.5 percent.
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