Leave it to our elected officials, the esteemed Gentleman from Ohio and the Lady from California, not to mention the other 533 reps who are supposed to be in charge of running the country and representing our interests, to reverse a strong market rally and risk shutting down our government days after the Federal Reserve announced it would not taper its asset purchases due to economic uncertainty.
The good news is that market participants appear to be turning a deaf ear to the moronic rhetoric and absolute lack of leadership coming from the Senate and House of Representatives. After the Federal Reserve surprised markets by announcing it would not change monetary policy, and a reasonably successful election cycle by Angela Merkel's Christian Democratic Party (CDU), markets will likely rally in the fourth quarter. My call is for the S&P 500 to close above 1,750 on Dec. 31, and to cross 2,000 in 2014.
While a 3% to 5% correction over the next couple of weeks is increasingly likely, the stage is set for the current bull market to run on. I don't expect the Fed to taper this year, and even if it does, it will be with the wind to their backs in the form of a much stronger economy. Just as importantly, valuations and the overall environment are conducive for new highs to be set.
• Market appreciation is driven by corporate earnings. S&P earnings for 2013 will likely come in around $112 to $114, meaning that a 1,750 S&P would have a market multiple of just over 15 times. Not cheap, but certainly not expensive.
• Interest rates will likely rise enough to cause losses in bond portfolios, but not enough to make money market and fixed-annuity investments attractive. This will likely drive investors to high-quality, high-dividend-paying stocks.
• Gold, silver and other commodities will likely be underperformers as well, causing investors to shift their attention away from these investments and back to stocks — after all, we've all been conditioned to chase returns.
• While central banks may tighten monetary policy slightly, they will remain extremely supportive. Fed tapering from $85 billion per month to $60 billion is hardly constrictive.
• The global economic recovery will continue at its current modest pace — without meaningful inflationary pressures, wage pressures or disruptions to the business cycle.
Although there are no guarantees and vigilance is always appropriate, the stage appears set for another great year for stocks. Much like this time last year, when few investors believed that stocks could or would rise another 10% (the S&P was below 1,400 this time last year), positive surprises are more likely than a prolonged correction.
European large-cap pharmaceuticals like Novartis (NVS) and Bristol Meyers Squibb (BMY) count amongst some of our favorite stocks right now, as do U.S. multinationals that are growing revenue and margins in Asia — Tupperware (TUP) is a shining example. Stay away from utilities and energy stocks, as they are likely to be the laggards over the next year.
Disclosure: Stocks mentioned are holding in separate account and MPDAX.
No comments:
Post a Comment