Tags: Heritage | Capital | stock | rally

Heritage Capital CIO Expects Summer Rally, Pre-Election Sell-Off

By    |   Wednesday, 27 Jun 2012 07:09 AM

The stock market will experience a summer rally, followed by a sell-off in the fall right before the election, Paul Schatz, chief investment officer of Heritage Capital LLC, told Yahoo.

Schatz said the first half of the year had a few unique twists, but it has been fairly typical for election-year market indices.

"It's been an interesting first half," he said. "We were vertical for a while and then we gave almost all of it back and now we're kind of treading water in no-man's land."

Schatz predicted we already had a springtime low.

"The early June lows are going to be the lows for a while," he told Yahoo.

"We will rally and peak some time at the end of July to the end of August. Then we'll have the traditional sell-off before the election, postconventions.

"Stocks already had the summer declines we saw in 2011 and 2010," he stated. "It's rare when you see it three years in a row. … I don't think it's anything near what we saw last year."

After the election, Schatz expects a year-end rally.

"So many of the bogeys for the market are known, everyone is worried about the same thing — the fiscal cliff, the euro, Greece, Spain, Italy — they're all on the table now," he added.

Schatz predicts that the problems in Europe will loom for the next several years.

"They're going to get their act together this decade. It may take three, five or seven years to get their act together, because the alternative is nonexistence," Schatz noted. "I mean Europe won't exist. I'm not talking about the euro, I mean the continent."

Europe will take its "sweet time," but will be fine in five to 10 years.

"We've been underweight Europe forever and will stay underweight," he added.

Regarding the fiscal cliff, Schatz said, "When push comes to shove, the lame duck Congress comes in, they make the middle-class tax cuts permanent, they extend the upper-class tax cuts for another six, 12, 18 months and let the next group worry about it.

"But I don't think they're going to solve that now," he added. "There's no impetus, there's no catalyst for it."

By the end of the year, Schatz predicts that the S&P 500 will be "1,400ish" and says he will keep an overweight position in biotechs.

Meanwhile, the so-called "fiscal cliff" looming at the start of 2013 with planned tax increases and spending cuts may begin to push the U.S. into a recession as early as the second half of this year, Bank of America’s top U.S. economist Ethan Harris tells Fortune.

Last month, the Congressional Budget Office warned the fiscal cliff could cause GDP to shrink by 1.3 percent in the first half of 2013, even as many economists are betting the politicians in Washington will cut a deal to avert the worst effects of the measures.

Harris says the fiscal cliff will begin to make itself felt long before it actually takes effect. Corporate earnings will slow in the second half and job growth may drop to nothing by October, pushing the United States towards the brink of another recession.



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2012-09-27
Wednesday, 27 Jun 2012 07:09 AM
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