Raymond James Chief Investment Strategist Jeffrey Saut believes advisors and their clients need to get in tune with the markets. “I see good markets through July or August,” he said to a packed crowd at the firm’s annual independent-advisor conference in Dallas in late April.
Saut also emphasized something he’s been saying in his regular blogs for the broker-dealer: “There’s a decent probability that we are in a secular bull market that has a decade or so to run.”
The investment expert told advisors (in his April 22 note), “I don’t think that ‘sell in May’ kind of strategy is going to work this year,” pointing to the fact that the market is “far from the overextended levels reached at the prior peaks of early 2000 and October of 2007.”
Stocks do not look overvalued, he added. “Indeed, on a trailing EPS basis the SPX is trading at 15.1 times trailing earnings and 13.7 times forward estimates. Juxtapose that to 25.1 times estimates in 2000 and 15 times at the 2007 peak.”
There are many factors driving his positive outlook, including higher housing prices, the return of manufacturing to the U.S. and the growth of the energy sector.
The expert pointed to the continued growth of the middle class in many overseas markets as another significant and positive long-term trend. Some 46% of the S&P 500 companies’ sales, and 40% of profits, come from outside the U.S., he said. “Meanwhile, recession risks from Europe are fading.”
If the markets take a quick tumble, Saut says to jump in: “Accordingly, any correction affords investors the opportunity for new buying in favorably rated stocks. Indeed, if you want to catch a wave you have got to grab a board and get into the water!”
Meanwhile, Charles Schwab Chief Investment Strategist Liz Ann Sonders has been telling advisors that the U.S. is truly undergoing a manufacturing and energy renaissance, particularly in recently depressed Midwestern states such as North Dakota, Sonders said in a keynote address before the Financial Planning Association’s New York chapter in early May.
“Someone asked me in a Q&A, ‘What’s your favorite emerging market?’ and ‘Middle America’ was what came out of my mouth,” said Sonders at FPA-New York’s annual summit. “Now when I’m asked what’s my favorite emerging market, I answer Middle America.”
Thanks to this renaissance, U.S. is “not just paper wealth” anymore, she said, predicting that U.S. household net worth would hit an all-time high in 2013.For every 100 jobs created in petroleum refining, another 1,190 additional related jobs are created, Sonders noted.
Further, she recalled a recent trip to China, where several representatives of the American Chamber of Commerce in China told her: “We think over the next 10 years, we’ll be bringing our business back to the U.S.”
“It is shocking that four years into a bull market we still have massive outflows out of equity. I’m amazed at how much skepticism I’m still met with after four years,” Sonders said. “I’m not a perma-bull, but I’m optimistic. At conferences, almost all the questions are bearish. I love that because I’m a contrarian.”
Despite American investors’ belief to the contrary, U.S. stocks are now in the greatest bull market of a lifetime—and it’s likely to last a long time because nobody really sees it yet and the economic landscape is uncertain, said investment experts Richard Bernstein and Bob Doll at the Tiburon CEO Summit held in mid-April in New York.
“We think we are in one of the biggest bull markets of our careers right now,” said Bernstein, CEO of Richard Bernstein Advisors and adjunct professor of finance at the NYU Stern School of Business. “Bull markets are not periods of wine and roses. They are periods of fear and indecision.”
Return on capital is highest where capital is scarce, he asserted, saying that’s why U.S. stocks are such a good bet even though asset managers keep pushing alternative investments such as timber, absolute return and emerging markets.
Bernstein’s firm now likes three equity themes: the American industrial renaissance, early-cycle Europe and reflating Japan. His one fixed-income theme is U.S. Treasuries for diversification. “Very traditional stuff is going to be the competition for alternatives,” he said, comparing the current bull market to one that occurred in the 1980s.
Doll, who recently left BlackRock and has become Nuveen’s chief equity strategist, agreed that investors who currently say “I’ll put my money in the stock market when things get better” are missing the mark.
“People can’t wait for the pullback to put some money in the market,” he said. “There’s a lot of cash sloshing around and looking for an entry point.”
Now’s the time, Doll said, predicting a double-digit percentage increase in dividends as payout ratios rise. He also predicts large-cap stocks will outperform small caps, and cyclical companies in the industrial and tech sectors will outperform defensives in staples and utilities. Nuveen is overweight stock, underweight cash, and prefers credit over sovereigns in fixed income.
For advisors, the American consumer’s skepticism offers an opportunity to study how they do and don’t invest and how the competition serves them, said Tiburon summit host Chip Roame. “Consumers have the same net worth, $66 trillion, as in 2007,” Roame said.
This represents a missed opportunity for advisors to serve the affluent market of Americans with $500,000 to $5 million in investable assets, Roame suggested. That affluent market comprises just 7% of consumer households but controls 50% of household assets, he said.
Meanwhile, Roame said, American consumers have fundamentally changed since the 2008 crash, becoming more conservative and self-reliant. They like exchange-traded funds and index mutual funds, for example, with ETFs taking an ever-greater market share (though ETFs represent only 10% of the larger market that includes mutual funds).
Joyce Hanson contributed to this report.