Many still bullish de­spite stocks hav­ing a down week.

Santa Fe New Mexican - - FRONT PAGE - Washington Post By Thomas Heath

Ev­ery­one is won­der­ing when this bull mar­ket will come to an end. To­mor­row? Next week? Next month?

Af­ter this week’s car­nage, you might be think­ing: Soon.

Peo­ple are in the news pre­dict­ing its demise or its sur­vival. Join the dis­cus­sion. Pick one. A friend scoffed when I told him I was writ­ing about an­a­lyst Paul Schatz call­ing a few weeks back for a pos­si­ble mini-cor­rec­tion. Ma­jor U.S. in­dexes were down about 4 per­cent this week de­spite Fri­day’s gains.

And that’s be­cause the stock mar­ket al­ways, al­ways, al­ways re­verses it­self — by a lit­tle or a lot.

Schatz is chief in­vest­ment of­fi­cer of Her­itage Cap­i­tal, a Con­necti­cut-based in­vest­ment firm. He thinks the fun­da­men­tals un­der­ly­ing the cur­rent bull mar­ket — strong cor­po­rate earn­ings, low unem­ploy­ment, strong eco­nomic growth — will re­main well into next year.

But he sees some signs that sug­gested the Dow Jones in­dus­trial av­er­age might have a steep and quick de­cline.

“If it comes, it’s a short-term pull­back in an on­go­ing bull mar­ket,” Schatz said. “Any weak­ness we get re­mains a buy­ing op­por­tu­nity.”

He sees the 30-stock com­pos­ite Dow, which has been bounc­ing near all-time highs in the 26,500 range, still hit­ting 30,000 by the Fourth of July.

In the mean­time, he an­tic­i­pated “some kind of mid- to-up­per-sin­gledigit pull­back in stocks.”

Added Schatz: “I need five closes above 27,000,” he said, re­fer­ring to the Dow. “Once it closes above 27,000 for five straight days, the next high will be 30,000.”

Why the pull­back? “The rea­sons be­hind it are never ap­par­ent ahead of time,” he said. “And it’s never the ob­vi­ous one. The rea­son this win­dow is open is what’s been go­ing on be­neath the sur­face of the stock mar­kets.”

Schatz said about 10 to 15 per­cent of the Rus­sell 1000 in­dex, con­sid­ered a bell­wether for large-cap stocks, are trad­ing in a bear mar­ket. That means they are cheap. He is talk­ing about Gen­eral Elec­tric, Ford Mo­tor, Gen­eral Mills, AT&T and some util­i­ties, banks and home builders. These are large, older com­pa­nies that tend to pay big div­i­dends but at the mo­ment are un­ap­pre­ci­ated by in­vestors. Many are called value stocks.

The cur­rent bull mar­ket has been un­der­pinned by growth com­pa­nies such as Face­book, Net­flix, Ama­ (whose founder, Jeff Be­zos, owns the Washington Post) and Google par­ent Al­pha­bet.

Schatz sees a split be­tween su­per­charged growth and lag­ging-value stocks that he calls “un­healthy.”

“You have a surge in the num­ber of stocks mak­ing new highs, and a surge in stocks mak­ing new lows,” he said. He was not sure why there is a split, but he sees it as a pos­si­ble cause for a sell-off.

I asked Ed Yar­deni, pres­i­dent of Yar­deni Re­search, for his take. Even with the sell-off, Yar­deni also ex­pects the bull mar­ket will charge ahead.

“If all it is is a sin­gle-digit sell-off, I wouldn’t worry about that very much and just stay with a bullish mar­ket,” Yar­deni said. “The prob­lem with pre­dict­ing a sell-off is you also have to pre­dict when to get back in.”

Yar­deni said he does not see any­thing con­vinc­ing that a re­ces­sion is im­mi­nent.

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