If it wasn't for the "generosity of the Federal Reserve," the stock market would be 10% lower today. That's how Jack Ablin, CIO of BMO Private Bank sees things currently, noting that if we removed all the stimulus and quantitative easing, fair value for the S&P 500 would be in the 15-hundreds, not the record high 17-hundreds.
"I wouldn't say (I am) bearish, but we're probably in a correction zone," Ablin says in the attached video. "We're looking at roughly a 10% correction, but that's probably not enough of a correction to cash in and move to the sidelines."
This despite the fact that the Fed's aforementioned generosity is set to go away. Not entirely, but at least a chunk of the $85 billion of monthly asset purchases are on tap to be tapered. Ablin's guess is that Bernanke will take a swing at reducing the stimulus program ''some time in the 4th quarter," adding that he thinks Bernanke "wants to at least start the conclusion of this experiment before he leaves" the central bank January 31st.
While many have seen this first step towards tightening as a seminal event for a red hot market, Ablin is more tactical, calling a 10% pullback little more than a "speed bumb in the long term scheme of things."
Even though the past month of gains has been led by Utilities (XLU) and Health Care (XLV), Ablin says he prefers the Financials (XLF) now, calling them cheap, profitable, with a fair amount of momentum. "They're working on a technical and fundamental basis so we're going to stick with them."
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