Stocks are selling off this morning, and some say it’s due to the healthcare bill. We have no idea. In fact we doubt it. But it’s possible that a massive new entitlement program is causing the bulls to get a little nervous. Actually, it’s not really the spending that’s the issue (since that’s something for down the road), but perhaps the effect on small business and hiring, which could come sooner.
Here’s how Raymond James strategist Jeff Saut sees it:
All considered, while cautious in the short-term, we are moored in the belief that the current backdrop will allow the SPX to fill the downside vacuum created in the charts by the Lehman bankruptcy over the next few months. That yields an upside target between 1200 and 1250, as can be seen in the following chart from our friends at Bespoke Investment Group. Inasmuch, we continue to like
the strategy of accumulating favourably rated names, preferably with dividends, in the investment account. Some names for your consideration include: CenturyTel (CTL/$34.86/Outperform), Leggett & Platt (LEG/$21.47/Outperform), and Brinker (EAT/$19.74/ Outperform).
The call for this week: The recondite healthcare bill passed last night and yet another “fence” has been built around the “wild pigs,” causing them to lose a little more of their freedom as they increasingly feast on the “free corn.”
Meanwhile, the equity markets are pretty overbought, the SPX is at the top of its Bollinger Band, India joined China in monetary tightening, the yield curve is compressing because short-term interest rates are rising, and the number of analysts revising companies’ earnings estimates upward is thinning. Hence the question this week becomes, “Does quarter’s end institutional window dressing turn into an
undressing?” Thus we are cautious, but not bearish, in the near-term. However, we remain bullish over the longer-term due to the fact that in nine of the 10 bear market troughs since 1926 the SPX has gained an average of 9% in year two following said trough.
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