Ask any investor how they feel about the first quarter and you're almost certain to get a cautious reply with some sort of reference to the looming fiscal cliff in late February. But before we revisit that battle, there are a few other issues that need to be cleared up.
"First we have to get through earnings," says Bob Doll, the chief equity strategist at Nuveen Asset Management, in the attached video. "We also have a psychology that is very cautious, so we have under-investment in equities."
If you add it all up, Doll paints a picture of the market that is choppy and lacking near-term direction. "I think there are a lot of cross-currents here," Doll says, adding that he would "buy dips but wouldn't chase them."
This, despite the fact that many investors are chasing banks and financials right now. Even though they're leading the market over the past week, month and year, Doll is far less convinced of the bank story, particularly the belief that the regulatory environment is improving.
"Tell me, what's the score? What does the regulation look like? What does it mean?" he questions. "CEOs would love to know what Dodd Frank means."
Consumer Discretionary (XLY) stocks are another hot sector that Doll is not chasing and, again, it's a top performer, having gained over 20% in the past year and tripled since the 2009 lows.
"They've had a huge run. They've defied gravity. And they're not inexpensive," he says. "So those [discretionary] companies are really gonna have to produce the results to win from here."
And so, at a time of almost uniform worry and uncertainty about what he calls "the potential for political and policy mistakes," this Wall Street veteran offers at least two tangible bits of short-term strategy.
"I'd still go out on a limb and be overweight equities," he says, proclaiming a willingness to ''ride through the storm" in more cyclically-oriented sectors exposed to what he thinks will be better-than-expected global growth.
At the same time, he thinks it's a good time to get ready for another round of fiscal cliff flight.
''People will come running into the bond market," he predicts. "But my guess is that would be a good opportunity to continue to trim bonds. I think we've seen the low in yields and they're going to creep higher over time."
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