BofA Merrill: Stocks to trade sideways

By Daniel Bases

NEW YORK (Reuters) - Stocks are likely to trade sideways over the next 12 to 18 months, with investor confidence dependent on growth in revenues, the chief global equity strategist at Banc of America Securities Merrill Lynch said on Wednesday.

Michael Hartnett, who was named to the post on June 1, said the coming earnings season will be crucial in determining whether companies are finding real demand for their products and services.

"Markets will be liable to very violent rallies but the broad directional theme for the next 12-18 months will be sideways rather than decisively upward and decisively downward," Hartnett said at the Reuters Investment Outlook Summit in New York.

"For us it means you are likely to see a big fat trading range. I'm just putting numbers out there, 800 to 1000," he said, referring to the Standard & Poor's 500 stock index. "The muddle-through view would be very much consistent with a trading range."

The S&P 500 .SPX closed at 910.71 on Wednesday. It has gained more than 30 percent since its March lows.

"If you can get evidence that margins are expanding because there is some top line growth, that is huge. That is a huge inflection point for the market," Hartnett said. "The market is going to feel so much more comfortable being overweight equities if that pans out."

Banc of America Securities Merrill Lynch's June fund manager survey showed that fund managers moved to an overweight position in equities for the first time since December 2007.

And without evidence of margins expanding on revenue growth? "Very simply, the market will conclude there is not much of an economic recovery," Hartnett said.