The Tell: Stock-market bull Birinyi raises S&P 500 target

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Prominent Wall Street bull Laszlo Birinyi on Monday again lifted his target for the S&P 500 after the benchmark hit his previous objective of 2,600 a month early.

In a note to clients, the founder of Birinyi Associates said the firm now looks for the index SPX, -0.04%  to hit 2,680 to 2,700 in the first quarter of 2018—a rise of 3% to 3.8% from Monday’s close at 2,601.42.

Birinyi had raised his 2017 target to 2,588-2,600 in September after the index took out his previous target of 2,500. The S&P closed at a record 2,602.42 on Friday and is up more than 16% so far in 2017. Birinyi has been consistently bullish since calling the start of the more-than-eight-year bull market.

In the note, Birinyi and Jeffrey Yale Rubin, the firm’s director of research, said investors should also watch the spread between the index and its 50-day average, which currently stands at 1.85%. If the spread were to widen to its post-2011 peak of 6%, it would translate to an S&P 500 at 2,710 (see chart below).

Birinyi Associates

The firm is also tracking the S&P’s year-over-year change, which now stands at 18%. Since 2012 the average peak for the measure is 23%.

“Especially given the tax legislation, investors with large gains are more likely defer selling in the hope of some relief,” they wrote. “All things being equal,” the average peak would equate to S&P 500 of 2,700.

As he has in the past, Birinyi backed up the forecast with call options, purchasing $265 calls on the SPDR S&P 500 ETF Trust SPY, -0.05%  expiring March 29. The fund tracks the benchmark index.