The Melt-Up Continues: Pros are buying the rally
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August 23rd, 2009 by AdvisorAnalyst
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Barry Ritholtz, CEO of FusionIQ, reminds us that in 1973-74, the market fell 44%, then rallied 78%. He says he is not calling the forecast this time that tightly, but says that before this is all over, the market which is up over 50% currently, may see 60, 70, or 80% before topping out.
The melt-up in the market has caused professional investors a great deal of performance angst over whether or not to re-enter the market more willfully, given the underlying concerns about the economy’s recovery and sustainability of earnings forecasts. Ritholtz says that fund managers are buying the rally, and this is reason to believe the market melt-up can extend higher.
“After starting the week with a big knock, the stock market has resumed its rallying ways, with the Dow closing above 9300 on Thursday while the S&P again surpassed the 1000 level.
“Professional money managers are buying into the rally in a big way, according to a Merrill Lynch Survey of Fund Managers:
• 75% believe the world economy will improve in the next 12 months. That’s the highest level in nearly six years and up from 63% in July.
• Average cash balances have fallen to 3.5%, the lowest since July 2007.
• 34% of managers surveyed are now overweight stocks, the highest since Oct. 2007.
• Risk appetite is also increasing, to the highest levels in two years.“The contrarian in you probably thinks that signals a market top. But Barry Ritholtz, CEO of FusionIQ and author of Bailout Nation, isn’t ready to call an end to the move. ‘We’ve worked off lots of that oversold condition,’ he admits, but that doesn’t mean the rally can’t continue for some time.
“Ritholtz, who told Tech Ticker in early March we were in for a monster rally, has 1,050-1,080 as an upside target for the S&P 500, with a slight chance it can go as high as 1,200. If the rally does extend to those outer limits, Ritholtz sees the Dow topping out ’somewhere around 12,000′.
“Regardless of your position, long or short, Ritholtz’s key message is to remain cautious. ‘This is a trading rally not a multi-year rally,’ he says. Eventually something’s got to give: ‘We’ve never had six-month period before where we’ve lost two million jobs and the market’s gained 50%,’ he says. ‘That’s simply unprecedented.’”
Source: Yahoo Finance, Tech Ticker, August 21, 2009.
(h/t: Investment Postcards From Cape Town)
Read more from the author/contributor here.
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Tags: 12 Months, Cape Town, Citigroup, Contraction Phase, Downturn, Economic Cycle, Economic Cycles, Emerging Markets, Favourable Environment, Global Economic Activity, Global Economy, Global Investors, Global Wave, Investment Research, Median Figures, Merrill Lynch, Postcards, Stock Market Performance, Target, TroughsPosted in Emerging Markets, Markets |
