There are parts of the equity market I like and parts I do not. That much is true. What I truly do not like are simplistic themes like this ‘Great Rotation` theme, or when I hear or read (see page 21 0f Barron's) that “Americans remain underinvested in stocks" and cite data like private pensions that “have only 35% of their assets in equities, well below the long-term average near 45%”. Well, what if they were overinvested at that 45%? What does that even mean - you aren't “over" or “under” based on some historical average, but based on your benchmark target, assuming you have one. If you are bullish, then be bullish for the right reasons - that you agree with the Bloomberg consensus view of 7% EPS growth (though these estimates are coming down at a fairly rapid clip), that your valuation metrics are flashing a “green light", or that this 85% correlation between the Fed's balance sheet and the S&P 500 manages to stay intact and avoid the laws of diminishing returns.
I do happen to like stocks that trade like bonds (hybrids dividend growth) and bonds that trade like stocks (credit arbitrage - corporate hond spreads are still quite attractive). Payout ratios of 36% are up from 29% two years ago but still far below the 50% long-run norm. See Shaking the Money Tree on page 26 of Barron's - it cites analysis showing how a yield-and-payout strategy would have delivered better than a 13% total annual average return over the past Sixteen years.
Combine that with a “hard asset" hedge in deeply undervalued sectors too - for examples, see How to Play the Battered Gold-Mining Stocks on page M9 ofthe current Barron's and A Comeback for Coal on page M11.
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