With International Business Machines (IBM), Cisco Systems (CSCO), and Exxon Mobil (XOM) streaking, the major benchmarks didn’t just extend their winning streak to two days, they did it with style.
David Clifford for the Wall Street Journal The Dow Jones Industrial Average gained 129.21 points, or 0.8%, to 15,884.57 today thanks to big gains in International Business Machines, which gained 2.9% to $177.85, Cisco Systems, which rose 2.2% to $20.68 after S&P raised its credit rating, and Exxon Mobil, which was upgraded by Goldman Sachs. The S&P 500 rose 0.6% to 1,786.54, as Allergan (AGN) gained 3.8% after last week’s Credit Suisse upgrade, and Tesoro (TSO) advanced 3.7% to $58.37.
The major averages got a boost from solid economic data that showed the U.S. economy, you know, improving. Of course, it remains to be seen whether this pickup in economic growth proves sustainable or just another head fake as in previous years. Really though, it doesn’t matter what you or I think, it’s up to the Fed, who will meet tomorrow and Wednesday and decide whether or not it will start the taper.
Mizuho Securities USA’s Steven Ricchiuto says that it would be a mistake to begin tapering now. He writes:
There is a growing perception that the economy is headed towards a self-sustaining growth trajectory in 2014 and therefore higher long term rates are justified. This pro-cyclical story rests largely on the view that a reduced fiscal drag in 2014 will allow the underlying improvement in the economy to show through. Now that it looks as if a budget compromise has been achieved, this is seen as further reducing the uncertainty that depressed 2013 growth. Our more cautious view on the economy stresses the ongoing household sector balance sheet restructuring and its negative effect on banks as the reason why 2014 will be another disappointing year despite the last two jobs reports. Moreover, we see the reduced fiscal drag in 2014 as fully offset by a shift to inventory liquidation next year.
No matter. Piper Jaffray’s Michael Cox and Steph Wissink see stocks heading higher next year:
As 2013 comes to a close we look back on the year with a profound sense of satisfaction. Despite a rising interest rate environment, the U.S. Federal Government shutdown and concerns surrounding a tapering of QE, the S&P 500 is close to its all-time high of 1813 reached in November. And now as we look ahead to 2014, we remain bullish on the equity markets and see a continuation of the secular rotation out of fixed income assets into equities…
We suspect this year's 100 basis point rise in the benchmark 10-year U.S. bond yield will lead investors to increase their equity exposure (specifically blue chip, dividend paying equities) early in 2014 to hedge against rising interest rates as the Fed begins to taper its bond buying (quantitative easing, or QE). A such, the broader market can still move higher despite a rising interest rate environment in part due to an improving macroeconomic backdrop and low inflation coupled with a steepening of the yield curve.
RBC Capital Markets’ Jonathan Golub and Manish Bangard tell investors to let their winners run:
At the beginning of each year, investors ask themselves whether they should buy last year's losers (underperforming stocks) or let their winners run. Given the strong returns in 2013, this debate is even more heated this time around. We're clearly on the side of letting the winners run in 2014.
We believe that this will play out for two reasons: first, 2013's high flyers haven't flown too close to the sun and they don't look problematically expensive; and second, sectors that have worked in the back half of 2013 are likely to deliver stronger earnings fundamentals.
In other words, keep on keepin’ on.
No comments:
Post a Comment