S&P 500 will rise 23 percent in 2011: Chadha

Binky Chadha, chief U.S. equity strategist of Deutsche Bank, is extremely bullish on U.S. stocks.

He is, in fact, the most bullish forecaster polled by Bloomberg and thinks the S&P 500 will return 23 percent in 2011.

Chadha is worth listening to because for 2010, he forecast the S&P 500 to end at 1,275, which is extremely close to the actually closing level of 1,257.

Chadha, speaking on Bloomberg TV, said historically, stocks tend to follow very long cycles. Right now, they are at the beginning of a long bullish cycle.

Two fundamental factors will drive the rally, said Chadha. One, interest rates are expected to stay low for a sustained period of time, which should boost economic growth and entice investors to move out of bonds and into equities. Two, the market will eventually be convinced that the economic recovery is self-sustaining.

Moreover, investors poured money into the bond market in the aftermath of the global financial crisis because of the vicious downturn in the stock market. Eventually, they will shift back to equities, said Chadha. When this happens, it will be a powerful tailwind to the stock market.

At current levels, Chadha also thinks stocks are cheap by historical standards and also relative to other financial assets.

Email Hao Li at hao.li@ibtimes.com