Francois Trahan recently spoke with Consuelo Mack on WealthTrack and stated his belief that the equity market is mid-way through a melt up. He believes this could last through the end of the year and possibly into the first quarter of 2013. He believes cyclically-oriented stocks like industrials and materials, as well as higher beta equities, will be the better investments during this melt up. He believes the S&P 500 Index could reach a high of 1,550. He does believe the market continues to be a secular bear one; however, he does [also] believe we are in the midst of another cyclical bull. He notes in the past 20 years, there were four 50%+ moves in the Japanese market and our low inflation environment is not too different from theirs. In short, he believes buy and hold is dead for the foreseeable future.
From a fundamental perspective, he notes several of the cyclical components of the Index of Leading Economic Indicators have turned higher: Interest rate spread, average weekly manufacturing hours, and manufacturers' new orders for consumer goods and materials. Housing continues to improve as housing affordability is at a record high. Also, investors will be drawn out of fixed investments as their low sentiment about equities will provide a tailwind for a short-term equity melt up. No doubt, investors continue to allocate investment funds to fixed investments as they are in a "risk off" mindset.
Although Trahan does not provide specific stock ideas in the interview, he does state investors should focus their equity investments on dividend paying stocks. Over 60% of S&P 500 companies have a dividend yield greater than the 10-year U.S. Treasury bond.