It's hard to argue that the economy isn't better off today than it was twelve, or even six months ago. Whether it's employment, GDP, manufacturing, confidence or spending, the economic trend has been improving since October.
"It gives us a thesis upon which the case for a more domestically exposed portfolio makes a lot of sense," says Mark Luschini in the attached video. The chief investment strategist at Janney Montgomery Scott is betting on a below average economic expansion of 1.5% to 2%, but "one that looks positive nonetheless."
But last week, Goldman Sachs (GS) research highlighted three reasons why the comeback might hit some short-term resistance. Here are their concerns: financial lending conditions may tighten, gasoline prices are rising, and benefits from an unseasonably mild winter are certain to fade.
So is it too early to declare victory and start moving your portfolio to capitalize on an economic rebound?
Right now, with stocks up more than 12% in two months, Luschini's camp is winning the debate. He'd like nothing more than a shallow 3% to 5% pullback to give him another chance to put more money in. In a note clients he writes, "any near-term decline should be used opportunistically to add to positions."
In particular, Luschini says he would add money to both the Regional banks (KRE) and Home builders (XHB) as domestic plays, which would play off the nascent recovery in housing and mortgage lending. He also thinks energy services (OIH) should be bought as a cyclical call on high and rising oil prices.
For more cautious investors who prefer total return ideas, Luschini would steer you towards ''high quality Healthcare (XLV) and technology (XLK)" companies that include some yield too and points to the low valuations and yields north of 3% in Microsoft (MSFT) and Intel (INTC) as good examples.
Do you believe in the recovery enough to buy stocks or do you need to see more evidence?
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