October 21, 2013

‘Dangerous’ Time for Stock Bears, Federated Warns

The firm says high-net-worth investors are on board and embracing dividend-oriented portfolios, contrary to advisors' assumptions

Linda Duessel, senior equities strategist with Federated. Linda Duessel, senior equities strategist with Federated.

As the S&P 500 topped all-time highs on Monday, a markets expert with Federated told attendees at the Raymond James Women’s Symposium that if the firm is correct in its reading earnings, dividends and economic trends, it’s “very dangerous” for investors to be bearish on stocks.

(The index closed at 1,744.66, its third record close in a row, and is up about 22% this year.)

Linda Duessel, a senior equities strategist, also explained why the firm maintains that a dividend-oriented strategy is optimal. “We have been different,” she explained to some of the 340 guests at the event, which is taking place this week in St. Petersburg, Fla.

The S&P could hit 2,000 in 2014, according to Federated, with economic growth of 3% or better.

Back in 2009, the firm called market conditions those of a secular bull market, “when I, personally, didn’t didn’t want to believe it,” joked Duessel. “But this is a new buy-and-hold [period], and so far, so good.”

She noted how the market is not moving sideways but, instead, is progressing in a stair-step pattern. And, along with several economic indicators, Federated expects the “economy to accelerate by the end of year and into next year.”

While the U.S. economic recovery has been tepid, Federated has raised its GDP growth estimate for 2013 from 1.1% to 1.7%.

“We also expect price-to-earnings expansion,” Duessel said. Corporate earnings are at all-time highs, she notes.

Dividends, Anyone?

A recent study commissioned by Federated found that high-net-worth investors may be more willing to embrace dividends to get the income they need than advisors might think, the speaker said.

When it comes to income, 30% of those surveyed picked bonds and 50% said equities/balanced funds. “You can’t get yields or safety with bonds," Duessel said. "A dividend strategy is your bond surrogate.”

Advisors say 30% or so of clients are cautious or very cautious, but only 9% of HNW investors say they are. Plus, 84% say they are moderate and are willing to move out the risk spectrum, according to Federated.

U.S. corporations are “just off high profit margins,” she points out, though further growth is unlikely in this area. “We need sales growth and, therefore, we need jobs!” Duessel said.

But Federated expects more hiring to take place. “There’s no recession in sight,” she said. “We are now at a state where we can go shopping.”

There are no big excesses to work off, Duessel notes, “other than government debt. And we see sideways, sleepy economic growth ahead.”

However, although we’ve gotten back 97% of the number of jobs lost in the most recent recession, the employment has mainly been in lower-paying sectors.

That could mean more entitlement spending and higher taxes, which means “less for the economy and for growth,” the equity strategist said.

On the plus side, housing sales have been up 10% year over year, global growth “continues to accelerate,” and Europe could be coming out of the recession.

“Financial advisors and clients are bullish on the economy, and the rotation [from bonds to stocks] has begun,” Duessel noted.

“The future may resemble the pre-‘80s decades; dividends will become more and more of an important feature, and look outside the U.S., too, to diversify yields,” she said. “We like U.S. munis and international stocks.”

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Check out Are We Near the End of a Long Bull Run? by Mike Patton on ThinkAdvisor.

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