Investors should buy banks and brokerages because the shares will extend gains as the U.S. economy strengthens, according to Robert Doll, chief equity strategist at Nuveen Asset Management LLC.
“I think you have to own some financials,” Doll, who helps oversee $117 billion at the Chicago-based firm, said in an interview on Bloomberg TV’s “Surveillance” with Tom Keene and Scarlet Fu. “If you expect the economy to continue to improve, you’ve got to own some of it.”
Financial companies rallied more than any other industry in the Standard & Poor’s 500 Index last year, gaining 26 percent, as the U.S. housing market recovered. Sales of new homes in February capped the best two months since 2008 and residential real-estate prices rose in January by the most since June 2006, according to economic reports released Tuesday.
Financial stocks as a group have gained 10 percent this year, outperforming the S&P 500, which is up 9.3 percent.
While the improving economy is driving the bull market in U.S. equities, Doll said gains may slow after the S&P 500 surged 130 percent since March 2009.
“We’re due for a rest and a rest doesn’t mean a big decline,” he said.
Residential property values in 20 cities increased 8.1 percent in January from the same time last year, the biggest 12-month gain since June 2006, according to data from S&P/Case- Shiller also issued Tuesday. The advance exceeded the 7.9 percent median forecast by economists in a Bloomberg survey.
Sales of newly built homes fell 4.6 percent in February to a 411,000 annualized rate, following a 431,000 pace the prior month, a report from the Commerce Department showed. It was the best two-month showing since August and September 2008.
Equity markets will be more volatile after Cyprus’s rescue fueled concern the European debt crisis will intensify, Doll said. Volatility increased last week as negotiations over a 10 billion-euro ($12.8 billion) bailout for Cyprus revived concern the European credit crisis will resurface in countries such as Spain or Italy. The deal also raised concern that bank deposits in other euro-area nations may be subject to levies to pay for rescues.
“I don’t think the bottom’s going to drop out, but it’s not that simple, to just say, ‘Cyprus, where is it, who cares?’” Doll said. “It took years for Europe to get into this mess. It will take years for Europe to get out.”
Last week, the S&P 500 posted its second weekly drop of the year, while the Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the benchmark stock index, jumped 20 percent for the week.
“A Band Aid covers up your wound, it does not solve it,” Doll said. “We’re not out of the woods.”
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