Tags: wsj | stock | fed | earnings

WSJ: Some Pros Say Stocks Are Due for a Time Out

Sunday, 23 Sep 2012 06:24 PM

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Stock prices have risen in recent years to the point that some investors and money managers feel equities are due for a breather, and are getting out.

The Dow Jones Industrial Average is up 11.1 percent this year and not far from a peak of 14164.53 hit in October of 2007, while the Standard & Poor's 500-stock index is up 16.1 percent so far in 2012 and has gained almost 30 percent from where it stood this time last year, according to the Wall Street Journal.

The rally, driven in part by Federal Reserve stimulus measures an less from fundamental demand these days, may be due for pullback, especially since corporate sales and earnings appear to be waning.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

"We're growing increasingly cautious after the kind of rally that we've had," G. Scott Clemons, who helps oversee $18 billion as the chief investment strategist for Brown Brothers Harriman in New York, told the Journal.

The "market has gotten ahead of itself."

Brown Brothers Harriman's BBH Core Select mutual fund, which is similar to the stock portfolios managed for its private-client accounts, is up 18.4 percent this year.

Others agree that the Fed's moves to cut interest rates and pump liquidity into the financial system have made stocks look good in comparison to other asset classes, but monetary policy cannot prevent corporate earnings from cooling.

"Nothing the Fed has done has increased earnings expectations," Benjamin Pace, chief U.S. investment officer for Deutsche Bank Private Wealth Management, which manages $350 billion, the Journal added

Since the 2008 financial crisis, the Fed has rolled out three rounds of quantitative easing, under which the U.S. central bank buys bonds held by banks, pumping liquidity into the financial system in a way that drives down interest rates across the broader economy to spur recovery.

A first round saw the Fed buy $1.7 trillion in mainly mortgage-backed securities from banks while a second round saw the Fed snap up $600 billion in Treasury holdings.

A third round announced recently will see the Fed buy $40 billion a month in mortgage-backed securities on an open-ended basis, though many other investors say such moves, normally bullish for stocks, won't work this time in that the global economy is cooling and corporate earnings are due to relax their once-robust gains.

"The market seems like it's climbing on central bank intervention rather than fundamentals," said Gary Flam, chief stock manager at Bel Air Investment Advisors, according to the Associated Press. "I'm not a buyer right now."

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

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