Photo: Credit Suisse
Uncertainty certainly remains elevated.But some these uncertainties are less worrisome than before, writes, Credit Suisse’s Andrew Garthwaite.
“We think the bulk of the consolidation in equities is complete,” he wrote in a recent note to clients. “Many of our tactical indicators that made us expect a shortterm period of consolidation are no longer as worrisome.
“Seven factors that caused us to be concerned three weeks ago now look better.” His list includes a few contrarian indicators. We summarize here:
(1) Hedge funds are more cautious and conservative.
(2) Corporate net selling (i.e. IPOs, secondary offerings, inside sales) is down. “We would like to see share buybacks picking up and suspect that over the US results season this will happen.”
(3) “The market is no longer as overbought with 72% of NYSE stocks now trading above 10-week moving average (a much more reasonable level), having been as a high as 84% by mid-September.”
(4) The risk appetite for stocks in the U.S. and Europe is down.
(5) “The bull/ bear ratio for Individual Investors has fallen well below average… Our Equity Sentiment indicator (based on bullish sentiment, put/ call ratio, inflows into equity funds and slope of implied vol skew) has fallen to just 0.14 standard deviations above average (having rebounded to +0.7 std in mid-September).”
(6) Earnings guidance is improving.
(7) The fiscal cliff is priced in. “Although our economists believe that fiscal tightening next year could be 1.5% to 2% of GDP compared to 1% this year, we note that corporate confidence is already reflecting this. There has not only been a fall in corporate confidence while consumer confidence has risen, but durables goods orders have reflected the weakness in CEO business confidence. So ironically the fear of the fiscal cliff may be as damaging to growth as the actuality of fiscal policy.”
Garthwaite expects stocks to trend higher for the next three months.
“We keep to our year-end 2012 target of 1,500 on the S&P 500,” he writes.
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