Salient to Investors:
Capitulating bears and overseas buyers are drowning out every other concern for American stocks.
Bulls say U.S. shares are becoming less vulnerable to global shocks and will keep rallying as skepticism eases among professional investors. Bears say indiscriminate buying shows the rally is in its last stages and stocks will fall as earnings drop and Fed stimulus ends.
Paul Zemsky at ING Investment Mgmt says as equity prices go up sidelines money will continue to get more comfortable and we’ll continue to see flows into equities.
US equities and bond rates have moved in the same direction 80 percent of the time in Q1 versus an average of 63 percent since the October 2007 record.
Howard Ward at Gamco Investors says the policy goal of weakening the yen has driven investors into other currencies where higher yields are available, including the dollar and euro bond markets – some of this capital finds its way into equity markets.
Bank of America said a net 57 percent of global money managers were overweight equities in March, the highest since early 2011 and up from 51 percent in February, while holdings in US stocks were at their highest level in eight months.
Johanna Kyrklund at Schroder Investment Mgmt said stocks climbing as yields declining is not inconsistent – you don’t need a global recovery for the rally to continue.
Plunges in Treasury yields matching the decline since mid-March have accompanied weakening equity prices 12 out of 14 times since 2010.
Alan Mudie at Union Bancaire Privee says investors are waiting for a correction.
The average analyst expects US companies to post their first profit contraction, 1.4 percent, since 2009 in Q2 versus a quarterly average growth of 4.7 percent in 2012 and 28 percent in 2010 and 2011. 21 of 30 companies so far reporting have exceeded analyst estimates.
Joost van Leenders at BNP Paribas Investment Partners is more surprised by the resilience of equities than by the strong performance in bonds, and expects changing fundamentals in the economy to have an impact on earnings.
James Paulsen at Wells Capital Mgmt says stock rebounds after crises make future threats less daunting, and people have been burned enough by selling out in 2012 and 2011 on stories of the end of the world that never came to pass only to watch stocks rally to new highs.
ICI reports retail investors have added $19.5 billion to US equity mutual funds in 2013.
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