While I am surely not that surprised to see a bear market rally (just like what we saw in 2008 at around the exact same spot), I remain pretty bearish overall, and am happy to miss the current rally. Someone, though, suggests that there may be a Santa Claus rally into the year-end in the US market as fund managers seem to have underweighted US equities.
Strategist Jeff Saut of Raymond James (via Josh Brown), believes that even a small shift in asset allocation into equities, together with the hope of European solution and possible monetary easing in Asia would produce that rally. He said, and I quote here:
A few months ago I made my annual sojourn to Europe to speak with institutional accounts. In seeing more than 100 portfolio managers (PMs) I could not find one that had more than a 15% weighting in U.S. equities despite the fact those PMs’ performance benchmark, the MSCI World Index, has a ~43% weighting in U.S. stocks. Yet, it is not just the Europeans that are light U.S. stocks. Here in our country endowment funds are under 10% weighted in U.S. equities. Ladies and gentlemen, there is no way an endowment fund can achieve its annual mandated return of between 6% – 9% with ~2.2%-yielding 10-year Treasury Notes! Accordingly, even a marginal shift in asset allocations to out of bonds and into stocks could cause stocks to trade higher than most expect. Verily, with an improving U.S. economy, Asian monetary conditions gradually easing, and an evolving solution for Europe, the chances of a Santa Claus rally have risen.
Now I am not sure if this is good news for investors in Asia, like Hong Kong, but at least this is something many bulls have been hoping for after underperformance year-to-date for many managers and investors, and amazing rounds of finger-pointing at short-sellers and bears (like myself). Do note that if one stock is down by 50%, you need it to bounce by 100% to get back to the high, and certainly, falling 50% within a short period of time is generally easier than bouncing 100%. But as I say, the best time window to short China, for instance, has long gone, even though my overall view on China remains bearish.
For the time being, this is the latest look at the comparison between now and 2008. Of course, past performance does not guarantee future performance. Maybe this rally will really get to the year-end.
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