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Are You a Bull or Bear?

John Blank


Equity markets are historically known to be discounting mechanisms for what lies ahead. 

In February 2013, fifteen Wall Street sell-side strategists forecast S&P 500 returns for 2013 of between -2.5% and +13.2% without dividends. 

Quite a range!

  • Three sell-side strategists were bearish and looked for -2.5% to +0.5% returns
  • Twelve bullish sell-side strategists looked for around +10% annual returns.

The Bulls

At the top of the sell-side pack, “The Raging Bulls” 

The Raging Bulls note the energy sector’s North American expansion, a renewal in U.S. manufacturing competitiveness, the explosive penetration of IT mobility, and an ongoing housing and construction rebound. Combine this with some positive demographic shifts for baby boom echo savers and more fiscally responsible behavior out of politicians. A surprise could come from changes in the U.S. corporate tax code to encourage companies to invest.

Below the “Raging Bulls” are “The Analytical Bulls”

These bulls believe the current level of macro surprises is consistent with significant stronger markets. Current GDP growth rates have historically been consistent with stock returns around +10%.

Prospects remain good for economic growth to reassert itself. Challenges are persistently met by concerted efforts of country officials and central bankers around the world.  They are aided and abetted by secular trends larger than the cyclical hurdles in the immediate path. The process of fostering a fuller recovery from the grips of a five-year’s gone global financial crisis will persist and ultimately prove successful.

The Bears

What is the fundamental concern?  Negative earnings revisions.

The cautious stances are predicated upon belief in a number of macro uncertainties — the most important of which stem from long-term U.S. fiscal imbalances.  These hamper earnings growth and constrain valuations in 2013. The U.S. government may push off its most important structural issues into the future, leaving significant uncertainty about the long-term direction of the economy and corporate profits.

The bear’s core argument falls this way...

We are entering the fifth year after the “The Great Contraction”.  Considerable progress has been made in deleveraging financial and household sectors.  However, the most complex stage – stabilizing public sector debt – remains a formidable challenge. 

Indeed, significant competitive advantages could begin to accrue to the U.S. economy in the years to come from energy, manufacturing competitiveness, and demographics. 

But the savings required to fund this private investment could be redirected to the public sector – if policymakers do not slow the growth of mandatory spending.

Do YOU Side with the Bulls or the Bears?

Take part in this survey, so we can find out how the Zacks community breaks down.

I will tabulate the results at the end of the weekend.

Here are the choices:

(A) I'm a Raging Bull.  Nothing can stop the U.S. economy.  Innovators propel us.

(B) I'm an Analytical Bull. Numbers say +10% returns this year.

(C) Neutral.  Range-bound markets from here on.

(D) Modest Bear.  Government dysfuncition is about to bite.  But not by as much as the cynics think.

(E) Full-on Bear.  Yeah right.  Five years of DC dumbness come home to roost this year.

I look forward to seeing how you explain the choice you made!

GREAT WEEKEND to you all.

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