When I was on my high school basketball team, in the throws of a disappointing season, one of our biggest problems was how easy it was for us to get distracted and taken off our game. "Focus on the fundamentals," our coach would plead to us, "and the score will take care of itself."
In much the same vein, in the face of a rising market that has many investors convinced a pullback is coming as they assess a world filled with risks, Doug Cote, chief market strategist at ING Investment Management, is instead focusing on what he sees as the 3rd consecutive year of fundamentals relentlessly marching forward.
"Global risk on the European front has been a driver," Cote says in the attached video. "But it is really dissipating quickly."
Instead of trying to time if and when a short-term correction might occur, Cote has wrapped himself in what he calls the "A-B-C-D's of fundamentals."
A) Advancing Corporate Profits
As we grind through the busiest week of 4th quarter earnings season, Cote points out that this is the 10th consecutive quarter of "good" earnings and sees more of the same for the year ahead. He's looking for $105 in earnings from the S&P 500 in 2012 and says these "record results are why you have to be in the market right now."
B) Broadening Manufacturing
The Cote talking point here is simple: "Thirty consecutive months of consistently positive numbers," he says. "We are in a manufacturing renaissance." Earlier this week our latest ISM index showed more growth in the manufacturing sector with the January level rising to 54.1 from 53.1 in December. And within today's jobs report data, the 50,000 manufacturing jobs created in January was the most in a year, and marked the 2nd best month since 1998.
C) The Consumer
Despite high unemployment and a cloudy economic backdrop, Cote still considers consumers to be "the game changer" and predicts both income and spending will continue to improve in the face of well identified headwinds. "Even a modest upside surprise would be very good for the markets," he says.
D) Developing Economies
At least for the moment, concerns that China's economy will undergo a ''hard landing" seem to have abated a bit and support for U.S.-based multi-national companies remains strong. "The biggest beneficiary of double-digit economic growth in China, India, or Brazil is U.S. corporations," Cote says.
As for the emergence of unexpected events, Cote's rebuttal is blunt. He says, of the two drivers in the markets --fundamentals and global risk-- he feels the global risk side has already been too heavily discounted.
As much as he believes in the Large cap multi-national story, his money is on the Mid Caps (^MID) and Small Caps (^RUT) which are outperforming the S&P 500 this year by 3 to 5 percentage points as the risk of recession (global or domestic) has gone down and investors are clearly acting on that belief.
What about you? Do you share Cote's confidence in the markets and manufacturing and earnings?
Let us know in the comments section below or reach out to me @MattNesto on Twitter or on the Breakout page on Facebook.
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