Tags: Market | Bear | Buy | stocks

S&P Market Bear Alec Young: Now’s the Time to Buy

By Michelle Smith   |   Thursday, 08 Sep 2011 12:39 PM

Headlines focusing on an extremely volatile stock market and uncertainty about the health of the U.S. and European economies have scared many investors into bearish positions.

More than returns, many people just want to know that their money is safe. However, Standard & Poor's global equity strategist, Alec Young, has recently become a bull, and explains his new position to CNBC by saying, “You can't be a bear forever.”

Young told CNBC “it’s time for investors to rebalance their portfolios with a tilt towards equities,” though he continues to urge individuals to avoid the financials.

The bears appear to be getting more airtime and thus a greater following than the bulls, but Young isn't alone in suggesting that risk makes more sense than heaping money into safe havens.

There are others who suggest that this should be an equity-buying season and one reason why is because they consider stocks to be cheap.

As a basis of support for that assertion, The Street points to the Fed model, which operates on the premise that “if the earnings yield for stocks is greater than the Treasury rate, then stocks are undervalued.”

Turning back to equities is a “no brainer,” according to The Street, because when investors put money into Treasurys they deserve a higher return than they would receive with stocks since their money will be tied up for an extended period. Yet, those who opt for, say 10-year Treasurys instead of equities, are shorting themselves because they will not receive those extra returns.

“The current yield on the S&P 500 Index (2.05 percent) is hovering around that of 10-year government bonds,” says The Street. “Over the past 40 years the difference has been an average of 4 percent in favor of the Treasury yield.”

An additional benefit of going with equities in a situation like that is that with stocks, there is also capital appreciation.

Young told CNBC he thinks the most likely scenario from here will be weak growth rather than a Lehman-type credit event in Europe or a double-dip recession in the U.S. "There is more to be gained by buying than selling in the current environment."

Steve Wood, the Chief Market Strategist of Russell Investments, also warns investors about overprioritizing safety.

Citing low absolute dividend yields and Treasury yields below any reasonable rate of inflation, he thinks the cost of peace of mind is far too high, according to Breakout.

He says it's like "overpaying to stick your head in the sand and ride it out."

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Headlines focusing on an extremely volatile stock market and uncertainty about the health of the U.S. and European economies have scared many investors into bearish positions. More than returns, many people just want to know that their money is safe. However, Standard ...
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