FYI | Jun 24 2020
By Peter Switzer, Switzer Report
The stock market will go up and here’s why…
If some experts think we’re buying stocks in a bubble but others such as the US-based Citi are telling their private clients that they think the US economic comeback will be faster than most others think, well it leaves the DIY fund managers — us — in a bit of a dilemma.
In [Monday night’s] Switzer TV Investing, we tried to get two fund managers to take bull and bear roles in what we thought would be an engaging debate, but they both pretty well agreed!
Roger Montgomery of Montgomery Asset Management and Rhett Kessler of Pengana Capital Group both admitted to being buyers post-March 23, when our market bottomed. But they now are worried that retail investors have taken the rally too far.
One of my debaters even thinks the millennials are more responsible for the rally’s excessive rise but I’m not interested in the blame game or who’s doing too much buying. My concern is more along the lines of being OK with this rally and being comfortable that the legendary Boston-based fund manager, Jeremy Grantham, who has dubbed this share-buyer spurge as a “Real McCoy bubble” is being too negative or not. And other heavyweight market experts have agreed, however, this is what Citi clients received a couple of weeks ago: “Citi Private Bank expects a more rapid economic rebound than many others,” it proclaimed.
“Following the markets’ powerful rally since March’s lows, Citi Private Bank notes that beaten-down bargains are less widespread than in previous new cycles. That said, the Mid-Year Outlook report identifies many markets and assets with greater rebound potential. Among them are emerging markets, small- and mid-cap equities globally, and certain ‘COVID cyclical’ sectors (including banks, real estate and traditional retail) that were hard hit and will be impacted for longer due to the pandemic-driven shutdown.”
And for those sitting on cash, hoping for a second leg down, this is what David Bailin, the Chief Investment Officer at Citi Private Bank said: “We encounter many investors who believe they have ‘missed the boat’ after the rapid gains in markets since March…[and] as a result, they are sitting on excess cash, hoping for another opportunity to invest at lower levels. Mid-Year Outlook 2020 not only highlights the folly of such market timing attempts, but also sets out many opportunities for putting cash to work as this new cycle begins.”
Of course, David could be wrong but I just wanted to show that smart people are divided on whether you can expect a sizeable second leg down and if it’s wise to play the waiting game.
I’ve said numerous times that a shocker second-wave problem could rock the stock market and June and July should be sufficient time to test out what lies ahead. Will it be a quicker-than-expected return to normalcy or a longer-than-expected bounce back, with the bad infection news likely to fuel a sizeable leg down.
Infections in Victoria over the weekend have slowed up the reopening of that economy and US infection news will serve to keep a lid on stock market enthusiasm this week.
I’m only an economist and so medical/pandemic forecasting is not my long suit. However, coping with any sell-off will be easier if you bought stocks recently expecting a slow pay-off over the next few years, even if the recent returns were bigger and faster than you gambled on.
I’ve been a buyer but any significant sell off will be met by me in the following ways:
- I bought for the long term, so a sell-off is annoying but manageable.
- I might buy more at lower prices, which of course is dollar-cost averaging.
- And I’m beyond panicking about stock prices that often irrationally go up and down.
That’s the way I look at the worst-case scenario and clearly the best-case scenario will simply bring me material joy – but I can wait for that, if I must!
But what about this bubble contention? Work from CNBC’s Mike Santoli is worth sharing with you.
This former Barron’s columnist is a good analyst and notes how a number of fund managers and legendary investors have doubts about the magnitude of this rally, especially noting how Oaktree Capital’s Howard Marks, who I watch closely, has observed that: “fundamentals and valuations appeared to be of limited relevance.”
He also thinks the positive upside has been given a surprising amount of benefit when it comes to doubt. And Santoli is not over-the-moon about how popular apps powered by people who have no discernible market knowledge are telling novice traders that “Stocks only go up!”