KKR Boosts Outlook for S&P 500, Profits Despite Inflation Threat
(Bloomberg) -- KKR & Co. remains bullish on global equities and corporate earnings heading into the new year, even as it predicted that inflation will be higher than consensus.
The private-equity firm boosted its 2022 target for the S&P 500 to 4,900 from 4,650, assuming earnings per share growth of 15%, according to a report Thursday.
“We do not see financial conditions tightening enough in 2022 to permanently offset the extreme amount of absolute liquidity that is still in the system,” New York-based KKR said in the report, whose lead author was Henry McVey, head of global macro and asset allocation.
The firm predicted that the consumer price index in the U.S. will reach 5% next year, compared with the consensus of 3.6%.
On Wednesday, the Federal Reserve shifted to an earlier end of its asset-buying program and signaled that it will raise interest rates in the year ahead as it grapples with the fastest inflation since the 1980s. Still, KKR said the continuing uncertainty related to Covid-19 likely portends “looser fiscal and monetary policy for longer” on a historical basis.
“Despite several macroeconomic headwinds, now is not the time to hit the panic button,” KKR said.
Other highlights from the report:
- KKR is overweight infrastructure, real estate and asset-based finance, including housing
- Predicts real rates of as much as 0.5% in the U.S. and -0.1% in Europe in 2022
- Europe and a few emerging markets will be the “star performers”
- Sees opportunities in energy, European banks, Chinese technology companies, beaten-down conglomerates and China high-yield debt
- Recommends allocating money to leaders in innovative fields such as blockchain, life sciences, payments and software
- Sees risk in long-duration bonds
- Expects more than a 50% chance of a market correction next year
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