New S&P 500 High on Deck and then Some - Strategists (SPY)

Equity strategists at Jefferies see the S&P 500 following the Dow into record-high territory and then continuing another 7 percent higher by the end of the year. The group raised their year-end index target for the S&P 500 to 1,673 from 1,565. The S&P 500 all time closing high is 1,565.15 set on Oct. 9, 2007. Currently the index sits at 1,552.

"Better-than-expected 4Q earnings and forward guidance, a broadening in the earnings base, ongoing share buybacks and continuous rotation out of fixed income ought to keep US equities well bid," Jefferies Chief Global Equity Strategist Sean Darby said.

They see the 2013 earnings integer to be closer to 122 versus 111 forecast, suggesting a projected multiple of 13.7.

Jefferies has been bullish on US equities since the end of 2011. "While US housing has bottomed out, in our view, the leading drivers for the US equity market have been a restoration of competitiveness and more recently signs that capex spending has started to recover," the strategists said. "We have held a non-consensus view over the improvement in the cyclical outlook for US stocks. The Federal Reserve’s aggressive monetary policy has been accompanied by huge political headwinds which we have felt has kept investors trapped in fixed income."

They said the main risk to their view is an unwinding of corporate credit spreads and a change in the pace of monetary expansion. "While we acknowledge that the economy is 'work in progress' and equity valuations are trading slightly above fair value, the improvement in the earnings picture coupled with subdued bond yields ought to allow equity prices more room to inflate."

Top sector picks for Jefferies' are: Crown Holdings Inc. (NYSE: CCK), Owens-Illinois, Inc. (NYSE: OI) and Rock-Tenn Company (NYSE: RKT) in Paper & Packaging; Avago Technologies Limited (NASDAQ: AVGO), Microchip Technology Inc. (NASDAQ: MCHP), ON Semiconductor Corp. (NASDAQ: ONNN) in Semiconductors; Dana Holding (NYSE: DAN), Navistar (NYSE: NAV), PACCAR (NASDAQ: PCAR), and Ryder System, Inc. (NYSE: R) in Truck spending beneficiaries; Kennametal Inc. (NYSE: KMT), Parker-Hannifin (NYSE: PH), and Timken Co. (NYSE: TKR) in Machinery.

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