It's almost impossible to miss the uncertainty being expressed by the financial media these days. Most economic data has shown moderate improvement lately. And earnings estimate revisions have not been severe, suggesting that the third quarter will be another solid quarter for earnings. That optimism spurred a huge rally last month, but the past few weeks have been rather noneventful in the indices. The financial media, and investors alike, have grown accustomed to rallies being short-lived. And now, nobody wants to get fooled into thinking this rally will continue.
In a recent conference, Morgan Stanley polled 150 of its clients to find their views on a range of subjects from the economy to allocations. A few of the results were not surprising, but there were several interesting expectations from the group.
One question asked what theme will dominate your investment decisions in the next year. The top answer was growth (43%) and curiously banking crisis was only 15%. When asked about the global growth estimates of 4.25% over 90% expect growth to not exceed estimates.
On September 27 we reviewed how money was moving into bonds and high yield stocks. Although our issue declared investors favored safe investments, the survey respondents expected yields to increase. A third of the surveyed expected the 10 year yield to increase to 3% or higher. High yields lower the price of bonds. Should the survey come true, bonds are not a good place for money and 55% of those surveyed picked equities as the best class to invest.
The respondents were bullish on the market. Half of all surveyed expect the SPX to be higher than 1200 in a year from now and only 18% checked the market would be lower. While the respondents were optimistic on the SPX, 62% preferred emerging markets. Europe received 20%, U.S. 12% and Japan 6% as the best place for stocks. The favorite country is Brazil. We highlighted Brazil last week. The stock we liked was Gafisa (NYSE: GFA) and also airline GOL (NYSE: GOL).
Within the market financials are the place to avoid with 37% suggesting underperformance. The preferred industry for the next year is miners at 32 percent, oil was picked next. Gold was expected by over 90% not go lower. 54% expect it will go higher by next year.
I agree with most of the surveyed, especially about oil and gold. Commodities should do well next year.