Photo: Bloomberg TV
Tobias Levkovich, Citi’s top U.S. Equity Strategist, is concerned earnings expectations for the second half of 2012 are too hopeful.However, he still think stocks are much more attractive than bonds.
Speaking with Bloomberg TV he said:
“The individual investor is still pouring money into bond funds and they’re not doing so into equity funds. The only place they’ll kind of tip their toe into is emerging markets, but domestic or U.S. oriented equity mutual funds continue to see outflows, other than income-oriented or dividend stuff.
Number two, if you look at valuation criteria where you kind of normalize earnings on a PE basis using 10 year rolling average kind of the way Schiller does but not exactly and then look at the five year forward of the 10 year yield in other words look to futures contracts to normalize away from financial repression, markets still look pretty attractive on the equity side. So there is a very clear difference in my mind between fixed income and equities I for the life of me don’t understand why people are buying U.S. treasuries.”
Levkovich’s weekly Monday Morning Musings note, however, builds on his cautious tone on earnings. He argues margin pressures are building up. He also thinks the fiscal-cliff at the end of the year and the presidential elections may cause companies to stay some investments during the summer until there is more clarity on the direction of U.S. policy.
Moreover, if GDP slides back to 1.2 per cent in the second quarter, as Citi projects, then that would raise some doubt about domestic economic strength and could hurt equities.
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