Salient to Investors:
Russ Koesterich of BlackRock sees an increased risk of a correction and the best performing sector the defensives are very expensive – this is a very different rally than what people are used to. Koesterich sold smaller companies on concern the US economy is not expanding fast enough.
Valentijn Van Nieuwenhuijzen at ING Investment Mgmt says risks are rising and is not making new share purchases.
Jim Russell at US Bank Wealth Mgmt said the strength and breadth of the equities market surprised most investors in Q1 as pensions and other funds owned too few shares in November. Russell is selling US equities and buying bonds expecting a pullback soon.
Chad Morganlander at Stifel Nicolaus is very cautious because of the absence of the self-sustaining lift needed to go from 1,550 to 1,750, and is 18 percent in cash and buying bonds.
The median economist expects the economy to grow 1.9 percent in 2013 and earnings to lose 1.8 percent in Q1 2013 versus a gain of 1.2 percent predicted at the start of the year.
John Stoltzfus at Oppenheimer said higher p/e ratios for defensive stocks are no reason for the rally to fizzle and may reflect conservative investing by individuals returning to the equity market for the first time since 2007. Stoltzfus said the real improvement in fundamentals is driving stocks higher and sees the S&P 500 at 1,585 by year-end.
Defensive industries are at a 26 percent valuation premium to the rest of the market. Consumer staples in the S&P 500 trade at 18.1 times earnings, Utilities at 17 times, and health-care at its highest p/e since February 2008.
Jonathan Golub at UBS said valuations signal danger after investors withdrew more than $400 billion from US stock mutual funds between 2009 and 2012. ICI said funds had $18.4 billion inflows in January and $1.1 billion in February and in March. Golub said a defensive-led market is not positive for a continued rally and sees the S&P 500 falling 8.3 percent to 1,425 by year-end. The average year-end strategist expects 1,583.
Brian Belski at BMO Capital Markets said this year is strikingly similar to the last three years with investors bracing for losses, and expects the S&P 500 to end 2013 at 1575 as earnings continue to expand.
The S&P 500 is at 15.3 times trailing earnings.
David Joy at Ameriprise Financial said there’s no question the cyclicals are cheaper but when do they take over the leadership? Joy would not be terribly aggressive.
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