Merrill Lynch: Better chance to buy stocks is ‘unlikely’

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Stocks are rallying for a third straight day, and the bulls at Bank of America Merrill Lynch may get some of the credit.

Merrill’s chief equity strategist, David Bianco, was pounding the table for stocks one week ago, urging clients to buy into the sell-off triggered by Japan’s nuclear-reactor crisis.

He followed that up with another bullish note on Friday, headlined “a better market entry point unlikely” -- i.e., if you’re waiting to buy, stop waiting.

After sinking 430 points, or 3.6%, to 11,613 last Monday through Wednesday, the Dow Jones industrial average rallied a combined 245 points Thursday and Friday. It was up 168 points, or 1.4%, to 12,026 at about noon Monday, with an hour of trading left to go.

Here’s how Bianco makes his case:

• “Provided the situation in Japan remains a natural disaster rather than a nuclear disaster, we expect [industry] supply and demand disruptions to prove short-lived and the impact to Standard & Poor’s 500 earnings per share to be minimal,” he said. Only about 3% of S&P 500 companies’ sales and 5% of profits are directly exposed to Japan, he said.

• Business capital spending is in a “strong multiyear cycle as companies use more of their free cash flow to expand and/or upgrade existing infrastructure.” He believes that “Japan, in addition to the Middle East situation, adds to the need for higher investment in energy production and energy efficiency longer term.”

• “Prior to Japan the two key risks to the S&P 500 were from a severe oil shock or an interest-rate shock. On the margin, Japan lowers both of these risks for the near-term” by fanning doubts about global economic growth, he said.

Bianco is keeping his year-end target for the S&P 500 index at 1,400, which would be a gain of 7.8% from the index’s current level of about 1,298.

-- Tom Petruno