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Markets to Stay Strong, Carry On Till Year End—Searching for Alpha for September 2011
One likely market scenario: mid-single-digit returns for full year. But where to invest?
Equities were able to retrace over half their losses early in the month to post a large but manageable loss for August (see monthly index numbers below). Momentum seems to be bullish after fears over S&P’s downgrade, and investors are left wondering if markets will continue their winning ways.
Our take is that the market will muddle through the fourth quarter up 3%-4%, ending up with a mid-single digit return for 2011.
There are several reasons for this outlook. Stocks are cheap, with forward P/Es below average. Corporate balance sheets are strong, earnings are growing, and dividend yields are attractive compared to fixed income.
The lack of competition is one of the biggest drivers of this view. With 10-year Treasury notes paying around 2.25%, there simply isn’t anywhere left to invest. And with credit spreads continuing to widen, high-yield bonds seem too scary to take the limelight away from stocks.
I don’t foresee any staggeringly brilliant legislative moves that would right the economy immediately, or new Federal Reserve policies that will cause the Dow to skyrocket. But I do see us muddling through—and that’s not such a bad thing.
(Click here to enlarge table)
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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