In a note to clients, he wrote:
More importantly, our implied long-term earnings expectations model suggests that the investment community is already deeply worried about future profit trends, which has historically led to strong subsequent annual market gains.
So where does he suggest investors put their money?
Given the likely increase in volatility, Mr. Levkovich thinks large cap stocks will continue to become more attractive.
Some of the names he highlighted include Occidental Petroleum (OXY), Hess (HES) , Microsoft (MSFT), Oracle (ORCL), IBM (IBM), Intel (INTC), Dell (DELL), Coach (COH) and Nordstrom’s (JWN), as well as large integrated oils and technology stocks.
If share prices rises higher, Mr. Levkovich expects they could get an additional boost from rising short interest – already at record levels – a result of lower chances for takeovers.