As we kick off trading in February, stocks are still mired in bearish territory. Investors are enduring a tough earnings season while waiting idly for the newly-passed stimulus package to have some (any?) sort of impact. The good news is more analysts seem to be saying stocks aren't destined for further large-scale declines. Bob Doll, BlackRock's equities strategist, even sees a few positive signs to temper the malaise (bold is mine):
While it would be easy to get trapped into a bearish mindset given such a difficult background, we do believe there are some reasons for hope: Lower energy prices are providing a boost to spending; lower home prices and lower mortgage rates have made housing more affordable; money growth has picked up; and credit spreads continue to narrow. Additionally, outside of the United States, many countries have only begun to enact fiscal stimulus measures to help the troubled global economy.
A number of crosscurrents are currently buffeting the equity markets. On the positive side, valuations have improved and a great deal of cash remains on the sidelines. On the negative side, the earnings picture is still deteriorating and risk aversion remains extremely high, which has been prompting waves of selling. At present, the S&P 500 is in a zone between 840 and 740, levels that marked the lows from last October and November. We continue to believe that the market is in a painful bottoming process, but that this zone represents a reasonable price level for investors to be accumulating equities.
Bill Stone, PNC's chief investment strategist, has a slightly different take on the current cash horde that's sitting out stocks (bold is mine):
While we think valuations are very supportive of higher values in the stock market, our optimistic view for the future months rests on some reduction in the historic level of risk aversion. Certainly we have seen some improvement in the credit markets, which is perhaps some initial sign of healing in the markets and increasing willingness to take on risk, however slight. On the other hand, uncertainties have hung over the markets, reflected in our measurement of household cash, which hit a new high of $9.15 trillion in the most recent available data on January 12. This does, however, provide a significant amount of fuel to drive the market higher once risk aversion fades.
I'll point out that Stone's comments on equities come in the middle of a long piece on the benefits of Treasury Inflation-Protected Securities (TIPS). Here's a bit on why they're worth a look:
From both valuation and goal-based perspectives, TIPS are likely a good addition to many portfolios at this time. In our opinion they provide some measure of insurance against the risk of inflation and falling real purchasing power, while protecting against severe deflation. This seems especially true for investors holding excess cash or nominal Treasuries.
It's good advice. Unfortunately for fans of stocks, when the pros are advocating super-safe bonds it isn't terribly good news. Recommending TIPS is sort of the equivalent of pointing out inflatable life vests on airplanes. They'll soften a crash and keep you afloat, but if you need them at all there's probably still something going very wrong.
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