David Burrows, President and Chief investment strategist, Barometer Capital Management takes your questions on North American large caps.
Much has been made of the recent tight ranges in many asset classes. It appears that we are moving through the end of thes tight trading ranges.
Bond prices appear to moving lower…bullish for interest sensitives like financials, and industrials.
And energy shares after consolidating their move up from the lows in January appears to be beginning another move higher.
From a BAML report, their Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month, they have found that when Wall Street strategists are bearish, markets tend to go the other way. In fact, with BAMLs indicator at the most bearish level in three years, they point out that when it was at these levels or lower, the forward 12 month total return for the S&P500 was positive 100% of the time for an average 12 month return of 27%!
This study supports The Barometer Team view that investors and analysts can’t currently see the forest for the trees. Flows continue into bonds at the lowest yields in history and flows continue out of equities while the yields available in stocks offer the biggest yield premium to bonds in 20 years. This is all ocurring at a time when earnings revisions for US stocks over the last month have seen the biggest lift in five years.
With markets having consolidated the gains made between February and June, Barometer believes markets are set to move against the grain leaving many portfolio managers and investors woefully under-invested.
Flows into or out of Equities
After coming back from what many considered the brink in February on expanding market breadth, the S&P500 made new all-time highs in June. Since then the market has traded sideways in the tightest consolidation range in forty years, working off an over-bought condition. During this period, while many managers and investors have been reducing equity weightings and talking the market lower, breadth readings have been immune and have remained skewed solidly positive. Of our short term indicators, percent of stocks with positive price momentum has pulled back from 72% in the S&P500 to 34% and now the market looks likely to be ready to make another push higher.