Faber Says S+P 500 May Rise to 1,000 on Bank Earnings (Update3)

By Rita Nazareth and Ken Prewitt

April 13 (Bloomberg) -- The Standard & Poor’s 500 Index may rise 17 percent to 1,000 in the next three months as government spending boosts bank profits, investor Marc Faber said.

U.S. stocks probably reached their bear market low when the S&P 500 fell to 666.79 during trading on March 6, Faber, who publishes the Gloom, Boom and Doom report, told Bloomberg Radio in an interview from Thailand.

Financial shares may increase further after the S&P 500 Banks Index jumped 25 percent on April 9, the biggest rally since at least 1989. Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among more than 30 S&P 500 companies scheduled to announce results this week.

“You have essentially a government that gives financials free money at the expense of the taxpayer,” Faber said. “With this free money, they may actually have decent earnings in the near future.”

Banks in the S&P 500 are forecast to post an 86 percent drop in first-quarter earnings, according to analyst estimates compiled by Bloomberg. Profits are projected to fall 57 percent in the second quarter and 52 percent in the third before rebounding 277 percent in the year’s last three months.

Bank of America Corp. surged 15 percent to $11.02 in New York while Citigroup jumped 25 percent to $3.80, leading a gauge of 80 financial stocks to the biggest gain among 10 industry groups. The S&P 500 rose 0.3 percent.

Outlook

Citigroup shares can “easily rebound” to $5 or $10 before drifting down again and possibly being wiped out, Faber said. The stock has fallen 83 percent over the last 12 months and has lost 43 percent of its value so far this year.

The S&P 500’s surge in the past month was triggered by speculation corporate profits will rebound following the government’s $12.8 trillion in pledges to rescue the financial system and stimulate the economy. Citigroup, Bank of America and JPMorgan said last month they made money at the start of 2009, while Wells Fargo & Co. posted higher-than-estimated earnings last week.

“We’re now starting to see some clarity,” said Greg Woodard, portfolio strategist at Manning & Napier Advisors Inc., which manages $16 billion in Fairport, New York. “If some of the negative earnings news disappear, we’ll see an improvement not only in the financial sector but in the stock market as a whole.”

Bank of America climbed above $10 per share for the first time in three months as expectations the government may nationalize the company eased and estimates on home loan profits rose.

‘Overbought’

“The market very near term has become somewhat overbought and the correction should essentially follow, but I doubt it will go and make new lows in the intermediate future,” Faber said. “The lows in early March at 666 in the S&P will hold and we’ll have another push up into July.”

Faber said in an interview with Bloomberg Radio on April 7 that the S&P 500 may drop as much as 10 percent after climbing 24 percent from 676.53 on March 9, its lowest close in 12 years. The index lost 2.4 percent that day, then climbed 5 percent over the next two. The 5 percent to 10 percent “correction” would be followed by a rally into July, Faber said in the interview.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net Ken Prewitt in New York at kprewitt@bloomberg.net;

Last Updated: April 13, 2009 17:05 EDT