Everyday, Everyday I Have the Blues
By John Stoltzfus,
Chief Investment Strategist
Where We Stand: October 2014
We reiterate our price target of “2,014 in 2014” for the S&P 500 with expectations that earnings will rise modestly to $115 per share.
We continue to favor cyclical sectors and cyclical stocks over defensive sectors and defensive stocks.
We favor an alpha (active) approach to investment over a beta (passive) approach. Thus we remain market cap agnostic – favoring exposure distributed among large, mid and small cap stocks as large corporations prefer growth via acquisition over organic growth and M&A remains a dominant market thematic.
Our favorite sectors to overweight versus benchmark weight include: Industrials, Materials, Technology and our contrarian pick Consumer Discretionary.
We suggest investors consider a core-satellite approach using individual securities, actively managed portfolios, ETFs and/or index funds to selectively hedge alpha picks with beta and hedge their beta indexes with alpha selections.
We expect the economic recovery in Europe thought presently challenged to persevere, empowered by a global recovery even as geopolitical turmoil in regions adjacent to Europe persists.
We expect bond yields to continue a process of normalization that will likely take yields higher but still remain overall manageable for the markets.
We expect inflation to be kept in check even as the economy reflates as modest wage growth underscored by robotics on the factory floor, algorithms in the office keep wage growth modest.
The performance among emerging markets is being challenged once again by U.S. dollar strength, concerns tied to a post-taper world as well as domestic politics and economics. Near term volatility may become opportunity in hindsight.
John Stoltzfus
Chief Market Strategist