The bulk of Bank of America Merrill Lynch's 2016 global outlook is a near-perfect extrapolation of current trends and themes - modest economic growth, a slow rise in U.S. rates diverging from other global central banks, commodities and credit under pressure, continued recovery in U.S. housing.
One standout line does interest however, and that's the team's expectation for value to make a comeback versus growth.
The research is fairly ample that value trumps growth, but it hasn't worked out that way for years. As measured by the Vanguard Value ETF (NYSEARCA:VTV) and the Vanguard Growth ETF (NYSEARCA:VUG), growth has trumped value by 690 basis points this year, and more than 2K basis points over the last five years.
It brings to mind another long period of growth beating value - the mid-to-late 1990s (how'd that one work out?).
From the intraday low on Aug. 24, the fifty stocks in the S&P 500 with the largest short interest are up just an average of 1%, according to Bespoke Investment Group. That's against an average gain of 8% for the other 450 members of that index.
This bucks the trend of heavily-shorted names leading broader rallies, says the group.
Also usually leading are smaller-cap names, but not this time - the 50 largest S&P 500 stocks are up an average of 11% vs. just 3.9% for the other 450.
In divergence number three (although this could be a corollary to the first one), the most beaten down names usually bounce the most out of a correction, but the worst performers in the market selloff are continuing to lag in the rally.
He turned bearish this summer when margin debt fell more than 6% in July and August. Its drop below a seven-month moving average told Ramsey demand for stocks was quickly sliding.
"Margin debt contracting is a sign of loss of investor confidence and it’s confirmation of a lot of other evidence we have that we’ve entered a cyclical bear market,” he says. “We got a lot of traditional warning signs leading up to the high in terms of market action, and deteriorating breadth and margin debt is important to the supply-demand analysis.”
As CIO of BMO Private Bank, Jack Ablin has recommended an overweight position in large-cap U.S.stocks since 2010. BMO is currently 50% overweight the U.S., but is getting ready to sell.
"We're going to go from substantially overweighting the U.S. to neutral to underweight,” Ablin tells Howard Gold. "This is a major policy decision ... Over the next three to five years the U.S. is going to take a back seat to international markets.”
His reasoning: U.S. stocks are too expensive, and while companies are beating Q4 estimates, analysts have sharply cut 2015 earnings growth forecasts to 2.6% from 8.1% as recently as late last year.
Based out of Naperville, Illinois, Calamos ETF Trust will enter the ETF space with the launch of the Calamos Focus Growth ETF (CFGE) on Monday.
According to the regulatory filing, CFGE will invest primarily in growth-oriented companies with market capitalizations of more than $1 billion that the firm believes offer the best opportunities for growth.
This active ETF may also invest up to 25 percent of its assets in foreign securities, and will feature an expense ratio of 0.90%.
"Relative to the past 50 years, this stock market has been abandoned and orphaned even as it had made participants wealthy," writes Bill Smead, drawing on a Howard Gold report showing only 37.7% of global investable assets were in equity at the end of 2012, the lowest since 1959 when records first began being kept.
Why? The mass movement to fixed income, the trendy move towards wide-asset allocation at the expense of plain-vanilla large-cap U.S. equities, the rise of alternative investing, and the echo-boomers - born between 1977 and 1996 - have been much slower to get married, have kids, buy houses, and invest in stocks than previous generations.
Smead's prediction: As rates rise over the next 10 years, fixed-income will sour and equity dividend payout ratios will normalize. Further returns from commodities and other esoteric asset classes won't match their once-in-a-lifetime moves from 1999-2012 and investors will lose interest. Rising rates will make LBOs less economic and private equity returns will decline.
"The lack of affection for US large cap equities will mute declines and reward patient long-duration owners of quality common stocks."
Credit Suisse and UBS will each launch a fund tomorrow with the help of advisor, Ken Fisher, who played a part in the successful launch of the Barclays ETN + FI Enhanced Global High Yield ETN (FIGY) just over a year ago.
The third launch will be the ETRACS Wells Fargo MLP Ex-Energy ETN (FMLP) from UBS; this fund will offer a play into the MLP space while avoiding energy plays, which often dominate holdings in broad MLP ETNs.
Maybe sensing the moderate early-2014 selloff is done with, investors poured $13.4B into equities in the latest week, according to BAML - the strongest in 12 weeks and bringing YTD equity asset-gathering back to flat.
Emphasizing the risk appetite theme, flows into high-yield bonds of $2.4B were the highest in 17 weeks, and money-market funds saw outflows of $40.45B after receiving inflows of $11.55B the previous week.
Still, emerging market debt and equity continues to be sold. In fact, outflows from EM equities over the past four weeks have risen to 2.2% of AUM - just shy of the 3% level which signals a contrarian "buy" signal, says BAML.
Turning into a pretty good contrarian signal himself, is Hugh Hendry, who dropped his multi-year caution in December to get "long pretty much anything." His Eclectica Fund subsequently lost 3.6% in January - its worst monthly tally ever.
The future looks like the recent past to Citi Private Bank, which - in its 2014 outlook - says stocks have room to run, but beware fixed income. Citi's projections are based on its Adaptive Valuation Strategies which looks at long-term valuation averages to gauge what an asset might offer in the coming decade.
"Our long-term AVS return estimates for government, investment-grade corporate and high-yield bonds are only 1.9%, 3.4% and 2.9% respectively. The recent rise in bond yields has helped emerging markets where estimated returns have now risen to 5.1%."
Don't toss away fixed-income entirely, says Citi, but instead cut duration exposure, look for credit risk instead of rate risk, diversify into MLPs, REITs, and dividend stocks, and favor floating-rate investments.
"2014 is the year to squeeze more juice out of risk assets. But investors should be ready to discard the fruit when it starts running dry," says BlackRock's Ewen Cameron Watt in the firm's 2014 Investment Outlook. "Beware of traffic jams: easy to get into, hard to get out of."
Behind the view is the idea central banks (U.S., U.K, Canada, China, to name a few) are poised to begin tightening monetary policy.
BlackRock doesn't believe stocks are yet in a bubble, but its "risk indicator" - measuring enterprise value against earnings adjusted for volatility - is nearly as high as just before the dotcom bust. "The ratio of the two is the key. High valuations combined with low volatility can make for a lethal mix. This market gauge sounded the alarm well before the Great Financial Crisis."
"The great peril is not that the Fed finally tightens monetary policy and US stock prices suddenly tumble from what are very obviously overpriced levels," writes Hugh Hendry in his December letter, explaining his new-found bullishness. "The greater peril is that the current backdrop will turn out to mark a rapid acceleration in the ongoing move to the upside."
In a highly entertaining essay drawing inspiration from the classic Bob Ryan character who popped up on HBO's Entourage for a couple of episodes, Hendry notes the eerie comparison to the markets of 1928, 1982, and 1998 - all ended badly, yes, but participants made plenty of money during the boom phase.