CIBC call sees beginning of a new bull
Earnings momentum
Paul Haavardsrud
Financial Post
Chris Bolin, National Post
Subodh Kumar, managing director of institutional equity research at CIBC World Markets, says recent strength in North American stock markets is the beginning of a larger bull market.
Investors concerned the market is in the midst of another false rally shouldn't worry, the investing braintrust at CIBC World Markets assured clients yesterday. A new bull market was born last September and better than expected news on the earnings front is going to keep it running, they said.
In a semi-annual update to clients, Subodh Kumar, CIBC's chief strategist and Jeff Rubin, the firm's chief economist, told investors the economy is set to bounce faster and higher than expected and there's no need to wait for further evidence before buying into equities.
"In a nutshell, look at earnings momentum as a theme in the market," Mr. Kumar said. "We think that momentum will be lasting well into the end of this year and as happens in a traditional early cycle environment, earnings above expectations will drive the stock market."
The strategist's bullish call on stocks has been largely unchanged for the last year. In April, Mr. Kumar made a major shift to equities, recommending clients move from a balanced portfolio to one 75% skewed to stocks.
When he made that call, he expected the TSE 300 to rise from 7733 points to 9500 points by this April. The index closed at 7944 yesterday.
Mr. Kumar still forecasts the TSE 300 will reach 9500 by year-end, a gain of 20% from yesterday's close. His latest target for the S&P 500 is 1450 points, which would represent a gain of 25% from yesterday's close.
Still, after a "savage assault" on corporate profits that lasted for more than two years, stocks are preparing to rebound, said Mr. Rubin. With inventories at record low levels it won't take much demand growth to turn around industrial production, "beginning what should be a long and spirited recovery in that sector," he said.
CIBC's boldest call is to go overweight industrial products, 27% versus a weight of 17.6% in the S&P 500.
Along with industrials, Mr. Rubin sees investing in Mexican markets as the savviest way to play a recovery in manufacturing output.
"With 90% of exports manufactured goods, Mexico has an even greater window on pickup in U.S. industrial [production] than Canada."
While economic recoveries never spell good news for bondholders, interest rates will not be raised as quickly as the market is anticipating, he continued.
"The Fed is likely to raise interest rates only half as much as the market expects and probably not at all until the latter half of the year."
phaavardsrud@nationalpost.com
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