By all accounts it has been a very good year for stocks, despite abundant uncertainty from Washington, sub-par economic and job growth, and corporate profits that have been not as bad as expected. New money has poured in, pushing several benchmarks to new highs, and Treasury yields and crude oil are also both on the rise.
To say that things look and feel a bit toppy here is an understatement, as a growing number of investors are publicly proclaiming that some degree of give back is overdue. This includes Jeff Saut, chief investment strategist at Raymond James, who's calling for a 5% to 7% short-term sell-off that could be triggered by the State of the Union this evening.
"I think investors are going to interpret the State of the Union as a more intransigent President," Saut says in the attached video. He predicts that the speech will not only rekindle the anti-business sentiment that has existed for the past four years, but it will also stoke "class warfare" as the battle over the budget will prompt calls for further tax increases. "I'm going to stick with the precedent of pullbacks," he says, noting the tendency of the market to sell-off after big Obama speeches.
"We are 29 sessions into a buying stampede," he says, explaining that a typical influx lasts only 17 to 25 sessions, with only two or three pauses "before they exhaust themselves." That said, he's quick to note that "there have been a few [stampedes] that have gone 25 to 30 sessions, but it is rare — and I mean very rare — to see one of these things go more than 30 sessions on the upside."
The good news, assuming he is correct, is that once we wipe out the year's gains, he believes "investors will buy the first pullback" and that it will only be a slight correction. His long-term confidence is still bolstered by a belief in the housing recovery, pointing out that autos "have done their job" already, and that it's real estate's turn to rebound.
** The president's State of the Union address will be delivered at 9 p.m. ET this evening in front of a joint session of Congress. On Wednesday, The White House will be hosting Breakout's own Matt Nesto, who will moderate a post-State of the Union discussion on jobs and the economy. You can submit questions during the event on Twitter (#WHChat, #YFinSOTU and #SOTU) or Facebook. You can also submit a question below. Let your voice be heard! **