thinking about the second half

I’ve been staring at this page for a while, trying to figure exactly what to put down.  Then I realized that my inaction neatly sums up what I think the consensus view is about stocks for the second half of 2013.  Gains have been so strong since January 1st that most equity portfolio managers can’t imagine that the second half will bring more gains.  They mostly intend, I think, to nurse the gains they already have into autumn and then coast to the finish line by making their portfolios look as much  like their benchmark index as their clients will let them.

I’m caught between two conflicting ideas.

On the one hand, the stock market as a whole looks reasonably valued.  Stock have weathered the rise in payroll taxes at the beginning of the year, the imposition of the sequester and the announcement by the Fed that it’s warming up to being raising interest rates.  Earnings growth next year will be flattered both by healthier economies around the globe and the absence of payroll tax hikes and the sequester as depressants.  And history has shown that the S&P goes sideways to up as the Fed raises interest rates to normal from recessionary emergency lows.  That’s all good.

On the other hand, I’ve been making a big effort to find new stocks to buy but I’m not bowled over by the cheapness of the candidates I’m turning up.  I’ve added one or two to my holdings recently, but nothing has really started to work so far.  That’s bad enough to outweigh the good–except that everyone goes through periods when he doesn’t see the sweet spots of market activity very well.  So this could be me.  And, except for a brief bout of nervousness a couple of months ago, I’ve been happy to remain fully invested.

I haven’t been hearing or reading about market strategists who are seeking to trumpet their bullish views, either.  One exception–Sam Stovall, chief equity strategist for S&P.  He’s another proponent of the flat-to-up thesis.  But he’s more bullish than I am.  He says that there’s a good chance the S&P could be up by another 5% by yearend.  What’s most interesting about his view is that Mr. Stovall has had his finger on the pulse of the market more solidly than anyone else this year.  In January he was calling for a 20% increase in the S&P for 2013–a number I thought was a very big stretch.  It’s comforting that the “hot hand” continues to think that risks are to the upside.

 

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