Libya? Oil prices? U.S Dollar? Employment? Inflation?
After laying out the popular stock market view (market’s up + investors buying + risks everywhere = sell U.S. stocks), Barron's continues...
Yet perhaps the most unexamined, or at least undiscussed, scenario for the corporate economy and for stocks is the unalloyed bullish thesis. Without fully endorsing it, here it is:
Job creation has begun to accelerate just as it did in the 2004-2005 period. Personal-consumption expenditures just reached an all-time, inflation-adjusted high. February's strong auto sales show a spring-loaded condition of pent-up demand in the economy. Corporate profits are swollen and continue to outpace forecasts. Buyout and other deal activity is only now starting to gather momentum. The Citigroup Economic Surprise Index, charting macro data releases versus consensus estimates, logged an all-time high last week...
The rationale for taking some profits off the table after the market has doubled and the world's gotten out of hand is pretty solid, yet the rest of the evidence suggest 'upside risk' might be underappreciated at the moment."
(Barron’s, “The Underappreciated Upside Risk,” by Michael Santoli, March 7, page 17)
The importance of this article is that virtually every Wall Streeter is reading it this weekend. Barron’s articles periodically spur analysts’ and portfolio managers’ thinking, especially when they identify an issue not widely discussed. (A search for “upside risk” and “stock market” reveals few articles linking the two.)
Despite oil's sudden rise, which has stoked fears of an end to stocks' bull run, growth investing mounted a comeback among managers of exchange-traded funds last month.
Large-cap U.S. growth-stock ETFs took in a net $829 million in February, reports Birinyi & Associates. In comparison, value-oriented blue-chip portfolios attracted less than half as much. Funds that blended both styles had outflows topping $654 million. It was the first time since October 2010–and only the second time in the past 15 months–that growth had led among the biggest stock ETFs.” (Barron’s, “Growth Leaps Back Into Favor,” by Murray Coleman, March 7, page 34)
- Buy (a stock) and write (a call option) – Is there anything worse than having to sell your winners at below-market prices?
- Hedge and “absolute return” - These sound great when risk drives the stock market, but their paltry returns in bull markets are upsetting
- Gold and oil (as long-term investments) – Lots of fanfare when they rise, but no real return, long-term. Both sit at peaks currently.
Disclosure: I am long AAPL.
Additional disclosure: Client positions: Long U.S. stocks and U.S. stock funds