In a note, BofA/ML’s David Bianco presents 10 reasons to buy stocks right now on the dip.
1. Policy, both fiscal and monetary, still remains accommodative – it takes big economic shocks to overcome accommodative policy. Recessions rarely begin before the Fed has even made its first rate hike.
2. Bear markets usually don’t happen when valuations are undemanding and earnings have not peaked (ex commodity producers little risk of peaked EPS).
3. Investor sentiment has shifted in recent weeks, after getting into bullish territory in January-February for the first time in years.
4. Risk of severe oil shock from prices surging to new highs ($150/bbl or higher) is less likely, in our view, given greater concern to global growth from recent events.
5. Risk of a US interest rate shock also lower, we believe. Threat of US longterm rates spiking on completion of QE2 this summer diminished by BOJ easing measures and global flight-to-safety of US Treasuries.
6. ECB may hike rates in the near term owing to an uptick in forward-looking inflation measures in core of Europe and strengthening of EFSF. This should keep the euro strong and provide a tailwind to S&P 500 EPS.
7. Japan supply chain risks do exist at Tech companies, but much of S&P 500 mega-cap Tech is more tilted to software and services, where little supplier risk exists.
8. Longer term, investment in energy production and energy efficiency should only rise. The US can become a bigger energy producer given the advantage of lower US natural gas prices. Many untapped oil-drilling opportunities in the US become economic at these oil prices.
9. Recent macro events may cause US investors to have more appreciation for domestic investments.
10. Corporate bond issuance likely to stay strong as interest rates likely remain low. We expect companies will likely issue more debt and use free cash flow to purchase more shares.