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David Rosenberg: 5 Reasons US Stocks Are 'Very Encouraging'

David Rosenberg: 5 Reasons US Stocks Are 'Very Encouraging'

By    |   Wednesday, 01 June 2016 08:09 AM

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates says there is a handful of reasons the U.S, stock market is in decent shape.

Even though the S&P 500 Index has soared by 13 percent since the February 11 lows, there's been chatter on Wall Street regarding how a potential rate announcement by the Fed at its June meeting could create headwinds for stocks.

There's also been increasing concern about less than stellar economic data both in the U.S. and around the globe.

But Rosenberg sees a handful of positive signs:

  • “First and foremost, sentiment is bearish at worst, ambivalent at best. This is a contrarian’s dream,” the Financial Post quoted him as writing to clients. “Bear markets begin with maximum complacency and optimism and that is clearly not the case today.”
  • Equity funds have seen net outflows for seven consecutive weeks, and “de-risking” is also coming in the form of selling high-yield credit funds and the buying of investment-grade corporate bond funds.
  • He also noted that with oil trading near $50 per barrel, a dark cloud hanging over the profit outlook is finally shifting. That’s good news when it comes to credit defaults on high yield energy debt.
  • Rosenberg believes the earnings recession appears to have come to an end, with first quarter GDP data including a 1.9 per cent annualized growth rate in profits.
  • He highlighted the “very encouraging” recent move higher in financial stocks and small caps.“If only the transports had not been lagging of late – the proverbial canary in the coal mine,” Rosenberg added.
Other prominent financial experts are just as optimistic, if not more than Rosenberg.

Newsmax Finance Insider Ed Yardeni, who has been ranked among Wall Street's best economic forecasters, predicts stocks will be 10 percent higher by this time next year.

"Is there a recession around the corner? I don't see it," Yardeni, the president of independent firm Yardeni Research, told CNBC recently. Even as speculation abounds over the Federal Reserve's timing on tightening monetary policy, the market bull believes the trend is still up.

"The bottom line here is even if the Fed [hikes] in June, we are still talking about historically low interest rates," he told CNBC. "I do think that the dollar will continue to strengthen, and I do think some of the panic and concerns about the commodity markets were overdone at the beginning of the year."

But not everyone is so hopeful.

Lawrence Summers, former Treasury secretary and onetime economic adviser to President Barack Obama, warns that the economy is full of warning signs despite relative market stability after some recent volatility.

"I think it is a mistake to be too satisfied with where we have been. If we look at the period from 1929 to 1940 and what happened to G.D.P. [gross domestic product] per adult American and we look at the period from 2008 to 2019 as best we can judge it, it is equivalent," he told the New York Times.

"The odds are better than 50-50 that we will have a recession within the next few years. What does the Fed normally do when that happens? The Fed normally cuts real interest rates by five percentage points. Is it conceivable that there is going to be room to do that, even maybe allowing for Q.E. [quantitative easing], even recognizing that maybe rates could become negative 50 basis points? I submit that it’s not."

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David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates says there is a handful of reasons the U.S, stock market is in decent shape.
david rosenberg, stocks, investors, markets
Wednesday, 01 June 2016 08:09 AM
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