Tags: Bernstein | Dianne Lob | Stocks | Bonds

Bernstein's Dianne Lob: Stocks Are Still Attractive, But Beware Bonds

By    |   Tuesday, 26 Nov 2013 01:04 PM

The stock market may be hovering around all-time highs, but its lofty success is all relative to profits, and from that standpoint the market is “far below its all-time high valuation,” according to Dianne F. Lob, chair of private client investments at Bernstein Global Wealth Management.

Lob’s bottom line: stocks are still a good investment even at these levels.

“Focusing on the market’s level is a mistake, in our view,” she wrote on parent Alliance Bernstein’s blog. “It’s market valuation, not level, that matters.”

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Lob said that fear of investing at market peaks may be understandable because of risk that other investors will take profits or that bad news will spark a sell-off.

“But for longer-term investors, market level has no predictive power,” she declared.

At 18.7 times trailing earnings, the S&P 500 now is more expensive than average, but it’s not overly expensive, according to Lob.

“But with interest rates still near historical lows, bonds are extremely expensive,” she wrote. From the perspective of earnings yield premiums, both U.S. and global stocks “are very attractively valued versus bonds.”

“While there’s always the risk of a market correction, we think long-term investors should invest in stocks at close to their strategic allocations. And, as always, it’s wise to diversify globally.”

An investor blog, The Short Side of Long, declared that the “stock market is the only game in town… for now.”

The blog noted stocks have outdone both bonds and gold by a wide margin in 2013. The Standard & Poor's Depository Trust ETF (SPY), which tracks the S&P 500, is up over 28 percent on an annualized basis, while corresponding bond and gold ETFs are down 16 percent and 29 percent respectively.

In addition to bonds and gold, the Short Side of Long reported silver on an annualized basis is down 53 percent relative to the S&P 500, corn is down 56 percent, coffee is down 45 percent, wheat is down 40 percent and copper is down 40 percent.

“The whole commodity sector is extremely oversold,” the blog said.

“These types of under-performances can continue for a while longer (and sometimes even end in a parabolic bubble), but eventually either bonds and gold will rally or stocks will crash very hard. It is one, the other or even more likely... a mixture of both,” The Short Side of Long predicted.

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The stock market may be hovering around all-time highs, but its lofty success is all relative to profits, and from that standpoint the market is “far below its all-time high valuation,” according to Dianne F. Lob, chair of private client investments at Bernstein Global Wealth Management.
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2013-04-26
Tuesday, 26 Nov 2013 01:04 PM
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