‘CONTRARIAN’S DREAM,’ SAYS STOCKS STRATEGIST

Not only has the S& P 500 Index risen more than one per cent in May and the Euro Stoxx 600 Index is up more than two per cent, but the U.S. Federal Reserve finally appears ready to hike interest rates this summer, and the correlation between Chinese stocks and global equities is falling.

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates says there are several reasons why stocks are showing some vitality.

“First and foremost, sentiment is bearish at worst, ambivalent at best. This isac on trar ian’ s dream,” he wrote. “Bear markets begin with maxi mum complacency and optimism and that is clearly not the case today.”

Rosenberg noted t hat NYSE short interest climbed 1.6 per cent in the first half of May, while Nasdaq net short positions rose 1.4 per cent.

He also highlighted last week’s AAII poll that showed only 17.8 per cent of retail investors are bullish, marking the lowest reading in more than a decade.

Next, Rosenberg pointed to receding geopolitical threats with Brexit polls suggesting the “stay” side is ahead, and Greece receiving its latest round of bailout money.

The economist also noted that with oil trading near US$ 50 per barrel, a dark cloud hanging over the profit outlook is finally shifting.

Fourth, 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.

Lastly, 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.