Photo: Drew Hallowell/Getty Images
Stock market analysts and strategists are feeling bearish these days. But who can blame them? Friday’s disastrous jobs number only added to a series of disappointing economic data coming out of the U.S. Furthermore, there’s also scepticism about the latest Euro bailout and fears of a Chinese hard landing.
However, it isn’t all bad. There are positive catalysts in the economy for those who look.
Top economist and analysts gave at least 9 reasons why we should see the glass as half full.
Deutsche Bank's Joe LaVorgna turned out to be right on with his prediction for a weak June employment number, and he's optimistic about August's:
'If the pattern of the last two years continues to hold, the economy could experience two more months of soft employment reports--the June release next week and then the July employment report in early August--before employment would then rebound and possibly very sharply.'
From Bank of America's technical analysis team:
'After triggering a Buy signal in May, our measure of Wall Street bullishness on stocks declined again, marking the ninth time in eleven months that the indicator has fallen. The 0.8 ppt decline pushed the indicator down to 49.3, the first time below 50 in nearly 15 years, suggesting that sell side strategists are now more bearish on equities than they were at any point during the collapse of the Tech Bubble or the recent Financial Crisis. Given the contrarian nature of this indicator, we are encouraged by Wall Street's lack of optimism and the fact that strategists are recommending that investors significantly underweight equities vs. a traditional long-term average benchmark weighting of 60-65%.'
JP Morgan's Chief Economist believes in the American recovery. Here's why:
- 1: A strong, hiring corporate sector: Kasman calls corporate ability to heal and produce strong results 'The most impressive aspect of US performance over the past four years...' Despite a deep recession and weak recovery, profit margins are back to peak levels, and U.S. companies are increasingly competitive worldwide. Strong margins, and increasing confidence in the recovery should lead to corporate expansion and hiring.
The proof is in the numbers, with private sector jobs increasing by 2 million, and private sector wages up 4.1 per cent over the last year.
- 2: A turnaround in consumer behaviour. The financial crisis was very hard on the American household, with lower job security, evaporating wealth, and a freeze in credit availability. Their reaction was understandably defensive, with households pulling back investment and building savings. This precautionary behaviour has been a drag on the recovery.
Though household deleveraging will continue, spending is starting to move more closely with trends in income, which will help support the recovery.
- 3: Housing provides a lift. Weakness in the housing market has held back demand, credit availability, and hiring. We're finally starting to see signs of a turnaround. The recent sharp increase in construction may not last, but an improved labour market and ultra low mortgage rates should stimulate demand. Sales of new homes are up 20 per cent over the last 6 months, and prices may have finally stabilised.
Investors fled cyclical and commodity tied stocks starting in April, fearing an accelerating Euro crisis and a global growth slowdown. Jonathan Golub feels that it is inevitable that these high levels of stress wane, and the depressed market will serve as a jumping off point for a rally.
Credit Suisse's Andrew Garthwaite recently gave 6 reasons the S&P 500 should rally to 1,440 by the end of the year. One of those reasons: the easy Fed
'We are positive on equities as: 1) economic lead indicators, although beginning to soften, are consistent with reasonable GDP growth forecasts; 2) dovish central banks and synchronised QE are the end game; 3) rising global excess liquidity is consistent with a c10% re-rating; 4) valuations relative to bonds are still attractive; 5) equities remain the hedge if, as we expect, long-term inflation expectations rise; 6) positioning is still cautious.'
This is a particularly interesting and contrarian idea, that retiring baby boomers will lead a stock market rally. From Citi's team:
'Keep in mind that the past three years actually have been very equity friendly and behavioural psychology argues that people are most affected by their most recent experiences. Additionally, baby boomers do not have the luxury of moving their stock holdings into very low yielding fixed income instruments and have much left for their own retirements.'
Sam Stovall, a master of historical analysis, sees a historical pattern leading to a rally:
'Should the market continue to mimic the average election year since 1900, and there's no guarantee it will, we will find that:
-The worst is already behind us, as 78% of all yearly lows occurred in the first half.
-85% of all highs happened in the second half, and 70% in the fourth quarter.
-The S&P 500 posted its strongest gain in Q3, rising 5.0% and gaining in price 61% of the time. (This data contradicts a look-back to only 1945.)
-July and August were the strongest months, gaining an average of nearly 2% and 3%, respectively. The final four months' results have also been positive.'