Two weeks into the shutdown, it's apparent that investors are divided into two camps depending on their time frames.
(1) Traders have reduced some long exposure, giving them slightly more liquidity than normal to take advantage of a potential sell-off without getting entirely out of equities. For the most part institutions are so badly lagging the broader market by so much that their biggest risk is missing a rally as opposed to getting caught in a sell-off. Mild though it is, the expansion in the CBOE Volatility Index (^VIX) is a sign of some downside hedging.
(2) Long-term investors regard few market threats as large enough to warrant them trying to time the market. This debt ceiling debate is not one of those high-risk portfolio threats. Every few years a major decline will send the masses to the exits in a panic; however, those instances are too rare to form the basis of an investing strategy.
Brian Belski of BMO Capital Markets is in the latter camp and telling investors to stay the course. "For longer-term investors we try not to time the markets," he says in the attached video. "We remain very bullish on stocks in America." Belski sees the market as a "three-legged stool" of fundamentals: corporate, consumer, and government.
"Two out of the three have done a really good job," Belski says of corporations and the consumer. Generally speaking the less said about recent U.S. government performance, the better. In fact he's one of the few on Wall Street willing to entertain the notion that the government just might surprise to the upside. Right now the consensus is that there won't be a deal, and if there is, it's likely going to be a disappointment.
Very few investors are willing to even consider the possibility that D.C. could surprise us in a positive way. Anything less than horrible could be enough to set off a stampede of buyers as institutions are forced to throw caution to the wind in order to save their jobs. Failure to recognize this could cause you to miss a rally.
There's ample reason to bet against politicians, but having the courage to go against the herd has proven to be one of the most reliable long-term strategies on Wall Street. As Belski puts it, "contrarian forces work very well when you have the analysis to back it up." By his calculations, American blue chips remain the most stable, strongest place to put your money.
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