Since topping-out in early April, the S&P 500 has shed about 7% in two and a half months. Still, compare that to analysts' growth expectations, which Factset reports have cratered by 40% during the same period, add in record low bond yields and the dollar index near a 2-year high, and you get a situation where pessimism looks to be clearly in control of investor psyche. According to Jack Ablin, the CIO at Harris Private Bank, that's an opportunity.
"Right now, the market has easy hurdles to meet," he says in the attached video. "Valuations are certainly expecting the worst and psychology and investors' attitudes are pretty low."
Of course, there is this little thing called the European financial crisis that refuses to go away quietly and is causing concerns and volatility in global markets, but even that has its bright spots too, Ablin says, arguing that their bad news can become our good news.
"We're picking up a lot of manufacturing jobs that the European countries are losing," he says.
Generally speaking, Ablin favors U.S. stocks, but also thinks Emerging Markets and Japan will come out on the other side of this mess relatively unscathed and is encouraged by the amount of tailwinds.
"The good news is, pessimistic investors generally have low expectations," he reminds us, saying investors are throwing all markets into the same bucket, "but at some point there have to be winners and losers."
If you assume that fear and risk aversion can't last forever, at some point, investors will start to shed Treasuries and pare their stakes in U.S. Dollars. The obvious resting place for that money in motion would be high yielding, large cap, U.S. stocks. Compared to the alternatives, they will be blessed with relative superiority. That's not to say our economy is about to get red hot or earnings are going to shoot through the roof, but compared to everything else, they may be looking pretty darn good.