Tags: Doll | Yardeni | stocks | forward

Doll and Yardeni: The Positives Are Still Adding Up for US Stocks

By John Morgan   |   Wednesday, 18 Sep 2013 08:02 AM

It's become a Goldilocks stock market, according to investment pro Bob Doll — economic growth is gaining traction, geopolitical tensions are easing and stocks are in just the right spot versus bonds.

Doll, chief equity strategist at Nuveen Asset Management, said in a client note, "Investors have just started to reposition out of bonds and into equities. Relative valuations continue to strongly favor equities despite the recent rise in bond yields and forward price-earnings ratios."

While the Standard & Poor's 500 has been in a "churning phase" while it sorts out various global economic problems, Doll sees brighter skies ahead.

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"The speed at which bond yields backed up has been unsettling, but a dialing down of the Fed's accommodative policy equates to a vote of confidence for the economy. We still believe economic and monetary policy will support risk assets."

According to Doll's check list of positives, the Federal Reserve looks poised to maintain its pro-growth stance, emerging markets have begun to rally, Middle East tensions have subsided and global leading economic indicators and purchasing manager surveys are slowly rising.

Economist Ed Yardeni, president of Yardeni Research, also sounded a positive note on his blog. He said forward earnings estimates for some major stock indexes are still headed upward.

"The S&P 500 forward earnings is at $119.29 per share and converging toward analysts' consensus expectation for 2014, which has stabilized recently just under $123," Yardeni wrote.

"The bottom line is that forward revenues, which have been more volatile than forward earnings, rose to a new record high. I calculate that the forward profit margin rose to a new cyclical high of 10.3 percent, nearing the previous peak of 10.5 percent during the week of Aug. 30, 2007."

Yardeni predicted the latest industrial production figures suggest positive earnings surprises are likely from companies involved in auto products, appliances, furniture, carpeting, transit equipment and industrial equipment.

Brad McMillan, chief investment officer at Commonwealth Financial, told The Wall Street Journal he thinks the stock market has already digested a likely Fed move to dial back its stimulus, so equities could continue to add to gains after the Fed's statement.

"For the short term, we're likely to see some more upside," McMillan predicted. "The market is pricing in a real recovery in the U.S."

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