Maybe it's just me, but the mood on Wall Street is beginning to feel a bit like the introduction to a prize fight. Instead of two boxers being introduced with their records and attributes, we are handed a growing list of pros and cons that seems to mount daily and only complicate our efforts to determine whether the climate for stocks and the economy are currently getting better or worse.
In the past 24 hours alone the Dow Jones Transportation Average (^DJT) hit an all-time high, the home builder confidence sits at its best level since April 2006, the World Bank slashed its 2013 projections for U.S. and global growth, and ratings agency Fitch again warned the U.S. that its AAA rating was at risk.
"I think things in general, and economic momentum, are improving," says David Lefkowitz, senior equity strategist at UBS, "and that's reflected in what you're seeing in the transports." Further bolstering his upbeat outlook, Lefkowitz cites this week's industrial production and retail sales data — both of which topped expectations — while characterizing the World Bank's outlook as bleak and slightly out of step with the consensus of 3.5%.
If you share his thinking, then you're likely to agree with his investment advice, which calls for lightening up on last year's defensive darlings while loading up on the comparably cheap cyclicals.
"Everyone had piled into defensives because nobody wanted to take risk," he says. "So cyclicals look very inexpensive relative to defensives." He's expecting that further economic momentum will attract more converts to his point of view over time and that "we're going to see investor shift back to those areas." More specifically, he's overweight the global multinationals that make up the Industrial, Materials and Technology sectors, the latter of which he expects will see a "nice tailwind" from continued improvement in corporate capital expenditures.
Ultimately, if he's right, his 1540 price target for the S&P 500 could prove conservative, as the benchmark large cap index could test its own all-time high of 1575 set in October of 2007.