Tahoe-Truckee Market Pulse: Yes, there is some good news
June 29, 2016
In this election year we hear a lot about what is wrong with America. Financial channels inundate us with downbeat market news during what is the most unloved seven-year bull market ever.
The analysts say what is happening in the real world shouldn't be happening in theory. They point to much lower prices or even a bear market. Some prominent names make the bullish case, but we don't hear from them often. Here are some:
Wharton Professor Jeremy Siegel, a frequent guest on CNBC, has been one of the most consistent (and correct) bulls for years (and he was correctly a bear in 2000). While others have been on-again, off-again bulls since the 2009 low, not so Jeremy. He was on CNBC again recently. Jeremy said we're in the "first inning" of a "big shift" into better-yielding stocks.
Behind Jeremy's bullishness is a recognition that investors will continue to turn to stocks for income, given the low-yielding alternatives. That has been my case, as you well know, and it will remain my case as long as inflation doesn't accelerate and force rates and bond yields much higher to a level at which they would be far more attractive. Jeremy said his fear is just that — inflation will return. While he doesn't expect that to happen, it's what would change his outlook for the long term.
Tom Lee, another frequent guest on CNBC since his days at JPMorgan (now with Fundstrat Global Advisors), often has had keen and unique observations. He recently pointed out that since 1985 there have been 15 years in which high-yield bonds returned more than 10 percent and in 14 of them stocks also had double-digit returns. The one exception was in 1992 when stocks returned 8 percent. And this year? The S&P U.S. High Yield Bond Index is up 9.7 percent, excluding dividends.
Lee's point: stocks follow the credit markets, and with good reason. Improving credit markets signal better days ahead for the economy and borrowers' ability to service and repay debts. That would help corporate earnings. Lee sees the S&P rising to 2300 by year-end.
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Economist Ed Yardeni turned bullish since March 2009 and remains upbeat on stocks. He doesn't expect a U.S. recession, even after the Brexit vote and when it comes to the Fed raising rates, he says "none and done" this year. He expects prices will climb over the long term. History is on his side.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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