'A new bull market is forming'...
Wednesday May 15, 11:14 am Eastern Time
SOURCE: Association for Investment Management and Research
New bull market is forming, investment strategist Don Coxe tells analysts at AIMR's annual conference
TORONTO, May 15 /CNW/ - U.S. stocks are in the early stages of a bull market that is struggling to find its leadership and to work through the excesses and abuses of recent years, a leading investment strategist says.
Donald Coxe, chairman and chief strategist at Harris Investment Management, Inc., in Chicago, said the leadership of the new bull market will be found among "short-duration stocks" - ones that pay dividends - and in sectors, such as basic materials, that were undervalued in the past. That's in contrast to the bull market of the 1990s, which was led by "long-duration" stocks, like Microsoft, that paid no dividends but were supposed to reward investors with faster growth.
Coxe made his remarks at the annual conference of the Association for Investment Management and Research, the worldwide association of investment professionals. More than 1,000 investment professionals from all over the world are attending the conference here this week.
Events of recent years have given equity markets a lot to cope with, Coxe suggested. He said the current market was recovering not from a mere correction, but from a "gigantic convulsion," similar in nature to the Crash of '29, the crash of the Nifty Fifty in the early 1970s, and the crash of the Japanese stock market starting in 1989, among others.
The convulsion was caused, Coxe said, by several factors, including:
- The bubble in tech stocks, which saw the market capitalization of this
sector rise to 35 percent of the S&P 500 at its peak from 11 percent in
the early 1990s.
- "Bad accounting," which allowed companies to inflate their profits by
booking investments on their pension funds as profits but not booking
stock options as expenses. Coxe said he welcomed an announcement by the
Standard & Poors Corp. that it will start computing earnings by methods
that will reverse these practices.
- A failure of the system's checks and balances to stop the runaway
market.
All of these excesses and abuses, Coxe said, led to "the most overvalued stock market of all times."
As investors deal with the collapse of that market, Coxe said, one of the lingering problems is the cynicism created by the failure of the checks and balances that were supposed to restrain it. Also restraining the bull, he said, is the threat of war, which historically cuts price to earnings rations by about 25 percent. The threat of war is another reason investors will favor short-duration stocks offering the rapid reward of dividends, he said.
Nevertheless, Coxe told an audience of several hundred analysts here, the collapse inevitably creates new opportunities, because the money that used to flow into tech stocks will seek other investments.
"The market is going through the base-building for the next bull market," he said, "which will be led by short-duration stocks." He identified oil and gas, base metals like nickel and gold, financials other than investment banks, and merchandisers as areas of particular opportunity.
Behind this bull market, Coxe said, is a global economic recovery, led by China and receiving support not only from the U.S. but also from Japan, which he said appears to be twitching in its economic coma. China's appetite for commodities creates a particular opportunity in that sector, he said. Opportunities outside the U.S. will surpass the American equity market, he added, as markets correct for the disproportionate share of flows into the U.S. market during the 1900s.
The Association for Investment Management and Research(R) is a 58,000- member, non-profit organization of financial analysts, portfolio managers, investment advisors, and other investment professionals in 112 countries. Its membership also includes 115 local professional societies in 34 countries. AIMR is internationally renowned for its rigorous Chartered Financial Analyst(TM) (CFA(R)) curriculum and examination program. More than 100,000 candidates are enrolled for the 40th annual CFA exam, to be administered in 75 countries this June. In addition, AIMR is internationally recognized for its investment performance standards, which investment firms use to document and report investment results, as well as for its Code of Ethics and Standards of Professional Conduct. More information is available at www.aimr.org, 1-434-951- 5499 (Virginia, U.S.A.) or 852-2868-2700 (Hong Kong).
For further information
AIMR: Rich Wyler at (434) 951-5344 or rich.wyler@aimr.org
Fleishman-Hillard: Paul Wagman at (314) 982-1700 |
