Consumer confidence may be at a five-year high, but investor confidence is being tested for the third time in five trading days. While there has been no change in the tailwind from housing and an improved economic climate that pushed stocks to fresh highs earlier in the week, the need for a new narrative is clear if investors are to stay engaged in a market that hasn't had a pullback in six months.
For Charlie Smith, the chief investment officer at Fort Pitt Capital, the much-needed bump might come from an unexpected place.
"We have a huge backlog of capital projects in the U.S. that need to be done," he says in the attached video, predicting a faster than expected reduction of the federal deficit could give corporate boards and executives the confidence they need to catch up on overdue projects.
In fact, with a capex-to-revenue ratio that's currently at a fraction of its historic norm, Smith thinks a second-half spending spree of sorts is not out of the cards.
At the same time, cautious comments and downwardly revised GDP estimates out of the OECD have understandably raised concerns in some markets, but Smith thinks the verbal nudge from the Paris-based think thank might be just what Mario Draghi and the ECB need to cathc up with the U.S. and Japanese recoveries.
"It seems like it's their turn," he says, adding that since last July when Draghi said he would 'do whatever it takes,' he really hasn't done a whole lot. "It's time to get his agenda on money creation out of the drawer and get going."
Still, he says certain parts of the market are definitely showing signs of fatigue, especially the yield-oriented defensives that carry uncharacteristically high PE ratios.
''That's a sign to me that the stretch for yield may be getting a little tired," says Smith.