Saut: The Current Market Is A "Nightmare" If You're Under-Invested

Raymond James strategist Jeff Saut says time is running out for the bears, and that with credit spreads returning to pre-Lehman levels there’s no reason stocks won’t do the exact same.

Indeed, despite the “bad mouthing,” all stocks have done over the past month is consolidate their July – September rally by moving sideways.  Moreover, that sideways consolidation has seen the equity markets work off their overbought condition into one of being pretty oversold.  Ladies and gentlemen, to an underinvested portfolio manager the current environment is a nightmare, especially if you believe as we do that we are going to see an upside celebration into year-end.  Manifestly, we have argued that with credit spreads below their pre-Lehman bankruptcy levels there should be no reason why the equity markets can’t “fill up” the downside vacuum created in the charts by said bankruptcy.  As can be seen in the following chart, that gives the S&P 500 an upside target of 1200 – 1250.  If correct, it implies that the cash rich, underinvested portfolio managers (PMs) will once again be forced to chase stocks higher.  Our guess is the PMs will chase the “winners” since the March lows rather than buying the laggards.  That suggests investments in emerging and frontier markets, technology, financials, base/precious metals, etc. should trade higher if the aforementioned scenario plays.

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