Many still bullish despite stocks having a down week.
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, Amazon.com (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.