In his weekly letter, Raymond James’ Jeff Saut lashes out at the naysayers for leading investors down the wrong path, away from stocks:
Most recently, rule-centric investors have been listening to far too many rants about double-dips, death crosses, Hindenburg Omens, Roubini Revelations, Prechter Prognostications, et al. Consequently, they have avoided my advice to buy blue-chip, dividend paying stocks, as well as special situations. So far, that “shun equities” mindset has been wrong-footed. Granted, I have underplayed the trading side of the current rally, however I have not underplayed the investing side having recommended over 30 stocks in these missives during the past few months. Additionally, I have been steadfast of the opinion that “it is a mistake to get too bearish here.” I still feel that way. Indeed, I was on a conference call with some institutional accounts in Zurich last week.
Those portfolio managers (PMs) were quite concerned about being underinvested in equities, particularly U.S. equities, which are a huge weighting in the EAFE Index. During that call I suggested that with quarter’s end approaching, performance risk, bonus risk and ultimately job risk will drive stocks higher. Verily, I believe performance anxiety is going to cause PMs to buy stocks right into quarter’s end.
As for his call for the week:
Last week most of the major stock market averages I follow broke out of their May – September trading ranges to new recovery highs (small cap indices did not). Confirmatorily, said break-out occurred on a 90% Upside Day (September 20th). According to the invaluable Lowry’s service, “There have been three consecutive confirmed 90% Upside Days since the beginning of September. That’s the first time there have been more than two consecutive 90% Up Days since the March 2009 market bottom.” While I am not looking for a repeat of the 2009 stock market rally, the S&P 500’s (SPX/1148.67) April “highs” seem achievable. Meanwhile, the bears continue to growl, “Where’s the volume?” My reply to that question is that the whole 2009 rally came on declining volume, as did this year’s May mauling, begging the question – does volume really matter? I think it does; yet, I can make the argument that declining volume is actually bullish because it implies most participants just don’t believe the rally is for real. When volume finally arrives, it would suggest the naysayers have finally capitulated, and bought stocks, which I would interpret bearishly as in – who’s left to buy?!