There's a lot of disagreement about where the stock markets are going over the next couple of years, but then what else is new?
The consensus among the heaviest hitters at the Orlando World Money Show is that 2010 will be a pretty good time to have some money in equities, the January Effect notwithstanding. But beware of 2011 and beyond. That may be the time to really hunker down.
In a nutshell, the forecast is short-term gain, long-term pain!
"Right now we are in a tremendous cyclical recovery in corporate profits," Fidelity managing director Bruce Johnstone told an audience of several thousand at the conference's opening ceremonies. Mr. Johnstone has a lot of credibility in the investment community - he's been with Fidelity for more than 40 years in various senior positions, including a highly successful stint as manager of one of the company's top-performing funds.
"We are okay for about a year," he said. "But this is an artificial recovery that has been generated by government stimulus. About a year from now the stimulus is going to wind down and profit growth over the next ten years will be below average. The next five to ten years are going to be very difficult."
His views were neatly summarized in the caption of a cartoon he showed at the conclusion of his talk. It depicted a speaker standing before an audience saying: "Although the end of the world will be filled with unimaginable horrors, the pre-end period will offer unprecedented opportunities."
So feast now for tomorrow the famine begins, at least financially speaking.
Barron's editor and president Ed Finn delivered a similar message although in more nuanced terms. "We're still bullish," he said. "Stocks could climb 10% or more in 2010 and 2011, with information technology and biotech the best-performing sectors."
But after that, the spiralling federal government deficit could "kill the dollar and reignite inflation". The result would be unsettled stock markets and a doubling or tripling in the price of gold, he suggested.
Stock researcher Ned Davis, who like Mr. Johnstone has been in the business more than 40 years, used his complex charts to predict a spring rally in the markets that would peak in April. But after that, watch out for a big correction in the second and third quarters, he warned, saying the S&P 500 is currently trading at about 19% above fair market value.
There will be a year-end rally, his research indicates, but overall "we are in a secular bear market so you need a trading strategy". By the way, Mr. Davis correctly called last year's powerful market rebound so he's worth listening to.
The cautious tone of the speakers was reflected in the results of a new poll of U.S. investor sentiment unveiled by Howard Gold, the executive editor of MoneyShow.com. It showed that only 12% of respondents were strongly bullish, saying the S&P 500 would rise more than 10% this year. The largest group, 37%, was moderately bullish, looking for an S&P 500 gain of less than 10%. In total, 49% expected the U.S. market to move higher in 2010.
On the other side, 19% expected it to be flat, 16% predicted the S&P would drop less than 10%, and another 16% expected a decline of more than 10%. So 51% of respondents were neutral to bearish in response to this particular question.
But the general nervousness of American investors became more apparent in their answers to another question. When Mr. Gold and his team asked for overall views on stocks, a startling 60% of respondents said we are still in a falling market and what we've been experiencing is a bear market rally. This group predicted stocks will make new lows before all is said and done. Only 14% said they believed we're in a new bull market.
"A decisive majority of the investors we polled have a profoundly bearish long-term outlook on housing, the markets, and the economy," Mr. Gold wrote in summarizing the findings on the MoneyShow.com website.
And here's one more result from the survey that is astonishing to anyone who has paid close attention to American investor attitudes over the years. A growing number of them want to take their money out of the country and invest it abroad.
Asked which type of asset they most favoured at present, 33% said foreign stocks. Americans have historically been extremely reluctant to invest outside their own country; in February 2009 (just one year ago) only 2% named foreign stocks as their number one choice. This remarkable change in investor opinion in the past 12 months appears to reflect a profound disenchantment with both the prospects for Wall Street and the outlook for the U.S. dollar.
All this suggests that Canadian investors need to remain cautious going forward. Although our market is quite different from Wall Street, the reality is that if U.S. stocks perform poorly, the impact is going to be felt here. Judging by what I saw and heard in Orlando, middle-class Americans are feeling very twitchy right now about the prospects for the country - a lack of confidence that is highly unusual for a normally self-assured nation. The implications for markets going forward are more volatility and a high degree of uncertainty. - G.P.
The consensus among the heaviest hitters at the Orlando World Money Show is that 2010 will be a pretty good time to have some money in equities, the January Effect notwithstanding. But beware of 2011 and beyond. That may be the time to really hunker down.
In a nutshell, the forecast is short-term gain, long-term pain!
"Right now we are in a tremendous cyclical recovery in corporate profits," Fidelity managing director Bruce Johnstone told an audience of several thousand at the conference's opening ceremonies. Mr. Johnstone has a lot of credibility in the investment community - he's been with Fidelity for more than 40 years in various senior positions, including a highly successful stint as manager of one of the company's top-performing funds.
"We are okay for about a year," he said. "But this is an artificial recovery that has been generated by government stimulus. About a year from now the stimulus is going to wind down and profit growth over the next ten years will be below average. The next five to ten years are going to be very difficult."
His views were neatly summarized in the caption of a cartoon he showed at the conclusion of his talk. It depicted a speaker standing before an audience saying: "Although the end of the world will be filled with unimaginable horrors, the pre-end period will offer unprecedented opportunities."
So feast now for tomorrow the famine begins, at least financially speaking.
Barron's editor and president Ed Finn delivered a similar message although in more nuanced terms. "We're still bullish," he said. "Stocks could climb 10% or more in 2010 and 2011, with information technology and biotech the best-performing sectors."
But after that, the spiralling federal government deficit could "kill the dollar and reignite inflation". The result would be unsettled stock markets and a doubling or tripling in the price of gold, he suggested.
Stock researcher Ned Davis, who like Mr. Johnstone has been in the business more than 40 years, used his complex charts to predict a spring rally in the markets that would peak in April. But after that, watch out for a big correction in the second and third quarters, he warned, saying the S&P 500 is currently trading at about 19% above fair market value.
There will be a year-end rally, his research indicates, but overall "we are in a secular bear market so you need a trading strategy". By the way, Mr. Davis correctly called last year's powerful market rebound so he's worth listening to.
The cautious tone of the speakers was reflected in the results of a new poll of U.S. investor sentiment unveiled by Howard Gold, the executive editor of MoneyShow.com. It showed that only 12% of respondents were strongly bullish, saying the S&P 500 would rise more than 10% this year. The largest group, 37%, was moderately bullish, looking for an S&P 500 gain of less than 10%. In total, 49% expected the U.S. market to move higher in 2010.
On the other side, 19% expected it to be flat, 16% predicted the S&P would drop less than 10%, and another 16% expected a decline of more than 10%. So 51% of respondents were neutral to bearish in response to this particular question.
But the general nervousness of American investors became more apparent in their answers to another question. When Mr. Gold and his team asked for overall views on stocks, a startling 60% of respondents said we are still in a falling market and what we've been experiencing is a bear market rally. This group predicted stocks will make new lows before all is said and done. Only 14% said they believed we're in a new bull market.
"A decisive majority of the investors we polled have a profoundly bearish long-term outlook on housing, the markets, and the economy," Mr. Gold wrote in summarizing the findings on the MoneyShow.com website.
And here's one more result from the survey that is astonishing to anyone who has paid close attention to American investor attitudes over the years. A growing number of them want to take their money out of the country and invest it abroad.
Asked which type of asset they most favoured at present, 33% said foreign stocks. Americans have historically been extremely reluctant to invest outside their own country; in February 2009 (just one year ago) only 2% named foreign stocks as their number one choice. This remarkable change in investor opinion in the past 12 months appears to reflect a profound disenchantment with both the prospects for Wall Street and the outlook for the U.S. dollar.
All this suggests that Canadian investors need to remain cautious going forward. Although our market is quite different from Wall Street, the reality is that if U.S. stocks perform poorly, the impact is going to be felt here. Judging by what I saw and heard in Orlando, middle-class Americans are feeling very twitchy right now about the prospects for the country - a lack of confidence that is highly unusual for a normally self-assured nation. The implications for markets going forward are more volatility and a high degree of uncertainty. - G.P.
