It’s been an incredible 2013 for the stock market.
The strength in equities makes people nervous about committing fresh money to the market, and now even some investing legends are out with cautious comments about how the stock market is “fully valued” and how you have to be wary of the Fed pulling the plug on the rally.
So what does one do?
According to Deutsche Bank’s Greg Poole, the answer is that you have to keep buying stocks.
Here’s his argument, which includes three key bullish points:
Equities have been the best performing asset class year to date. Given many DM equity indices are at or near all time highs, given positioning, the pain trade is to Buy them here. Nevertheless, we remain positive on Equities. The end of the first phase of an equity bull market is multiple expansion ahead of an earnings inflection. After nearly two years of downgrades to earnings expectations, we remain increasingly confident that an inflection is close at hand:
— 80% of global PMIs in August are trending upward and point to an annualized Q3 global GDP run rate of 4%., This is ahead of DB’s above consensus global growth target of 3.8% for 2014.
— Corporate commentary is more cautiously upbeat in tone
— Central Banks remain in a super-accommodative mode and are keen to avoid rising interest rate expectations suffocating the nascent growth before it has taken hold
Wednesday’s move by the FOMC to temporarily defer tapering, until more tangible signs of growth are irreversibly lodged in the broader fabric of the economy, supports our relative preference for Equity over Bonds.
The last point about central banks is an interesting one. Not only did the Fed decline to “taper” at its last meeting, but ECB chief Mario Draghi said yesterday, too, that he would consider more actions to improve Eurozone liquidity if needed.