As a rule of thumb the stock market attempts to anticipate future events. Never in the 100-year history of the Federal Reserve has a policy change been more foreshadowed than the end of quantitative easing. The problem for those waiting to buy the presumptive market slump is that stocks have refused to give a meaningful dip in 2013 and the Fed hasn't actually started the tapering process. At least not yet.
Nick Colas of the ConvergEx Group says now is the time for investors to start positioning themselves for a post-stimulus world. Just because a sell-off seems obvious doesn't mean it's not going to happen. With stocks having made what would normally be two years of gains in just five months Colas suggests investors stay on their toes and gather some cash now. Stocks have been moving in lock-step higher regardless of their long-term prospects, Colas explains in the attached clip. To market veterans stocks that rise together go down the same way.
Colas says the ever-looming decline will be a chance to add growth stocks while the rest of the herd chases value. To distinguish between the two look at what the companies are doing with their cash now with rates as low as they're likely to get.
What little EPS growth there is right now is coming in one of two ways: companies are either driving their core businesses through capital expenditures or shuffling assets with share buybacks and dividend hikes.
"Making earnings is really about growth as much as it is about cost cutting," Colas notes. That being the case the winners in the second half of 2013 are those that will be able to show organic business opportunities as opposed to creative accounting practices.
For all the worrying about a QE taper, the long-term impact is going to be a return to old school concepts like finding companies expanding their earnings and buying shares at a reasonable price. Once the stimulus ends everything old like fundamentals will be new again.