Barclays Sees S&P 500 at 1,975 in 2014; 2,100 in 2015

The torrid rise in margin debt has everyone talking these days. Why? Bears take it as a sign that the the stock market is ripe for a correction.

Barclays U.S. Equity Strategist Jonathan Glionna isn't waving a red flag.

In our opinion, a sharp increase in the use of margin debt in relation to the size of the market is a warning sign, but the steady increase seen over the past five years is not…margin debt in relation to market capitalization has been steadily increasing since the early 1990s. We attribute this to greater participation from leveraged investors in the market during the past 25 years and believe it is a structural shift higher…

Granted, he isn't expecting big returns anytime soon. Glionna's sees the S&P 500 rising at a pace in line with profit growth. That puts the index at 1,975 in 2014 and 2,100 in 2015, up 9% and 8% respectively.

Looking for better returns? That will require better revenue growth, which Glionna calls "The missing ingredient." He writes:

…the recent price increase of the S&P 500 has been justified by expanding margins, active share repurchases, and a reduction in systemic risk premiums, high revenue growth must emerge for the market to re-rate higher once again…top-line growth is poor. Sales growth has been less than 3% and we believe it will remain subdued because of weak domestic economic growth and an inability to restart last cycle's growth engine: international sales. The last time the S&P 500's price-to-sales ratio was higher than it is now, sales were growing at 7%.

For the S&P 500, Glionna sees profit per share rising 7% this year to $107 and gaining another 8% in 2015 to $116.

As for recommendations, Glionna is at Overweight on financials, energy, technology and industrials, but Underweight on consumer staples and health care.