After a brief post-election swoon, stocks have been on a tear, with both the Dow Jones Industrial Average (DJI) and the S&P 500 Index (GSPC) up more than 6% in the last four weeks. Entering Wednesday's session, the Dow and S&P were at their highest levels since Oct. 18 and pointing higher in early trading thanks, in part, to better-than-expected results last night from Oracle (ORCL).
Equities are attracting investors again after November’s sell-off for one simple reason: "There aren’t any alternatives to stocks," says Josh Brown, vice president of investments at Fusion Analytics and author of the popular “The Reformed Broker."
“Stocks are able to go up on neutral, good and negative earnings because of QE,” Brown notes and he recommends that investors buy shares of companies like Johnson & Johnson (JNJ), one of many blue chips that have bond-like qualities. JNJ’s dividend yield is currently 3.4% versus just 1.83% on the 10-year Treasury.
Brown prefers bond-like-equities any day over U.S. government debt and believes efforts by central bankers around the globe will keep buoying markets for the foreseeable future. As for market leadership, Brown says Apple’s days are over as investors increasingly rotate to financials, one of the best-performing industry groups in the S&P 500 this year.
But he's no raging bull. Higher stock prices are obscuring weak market fundamentals, Brown argues, and he points to disappointing earnings reports from U.S. multinationals.
At the end of October, Brown was advising clients to pare back their equity holdings and raise cash to as much as 25%. He puts the probability of a U.S. recession over the next 18 months above 50%.
“Earnings expectations for 2013 are probably too high” and the consensus of $110 for S&P 500 next year is “not realistic," he says.
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