Big Investors Back Off Bonds Fueling This Bull Market
That is the consensus of prominent investors attending this week’s Reuters Global Investment Outlook Summit.
Expectations that Donald Trump will successfully engineer massive new infrastructure spending, slash corporate and some personal income taxes, and wipe out a slew of regulations may boost prospects for US stocks, and end what some investors call a 30 year Bull Market in bonds.
“The earnings impact of President-elect Trump will outweigh whatever increase in bond interest rates comes about,” said Steven Einhorn, vice chairman of hedge fund Omega Advisors Inc, which invests about $4-B.
Mr. Einhorn expects US stocks to return as much as 8% in Y 2017, including dividends. “The risks are to the upside for the Standard & Poor’s 500 (SPY) rather than the downside,” he said.
As the post-election, double-digit percentage surge in bank stock prices suggests, investors expect Donald Trump to bolster that sector by reducing its regulatory burdens.
They also said infrastructure spending could boost interest in the old-line sectors of coal and steel.
“I do think that Donald will do an excellent job,” said Carl Icahn, the billionaire activist investor and one of Donald Trump’s earliest Wall Street supporters.
But Mr. Icahn, who left what became Donald Trump’s victory party in the early morning on 9 November to make a nearly $1-B stock bet, expressed near-term caution about stock markets, citing concern about the overall US economy.
“It has run ahead of itself,” he said. “There are going to be bumps along the road. You know, this is a big ship that you’ve got to really turn around. You’ve got to get this economy back on track, and I don’t think it is.”
Investors are betting that will change and poured a net $23.6-B into US stock funds in the latest week, according to Lipper data.
Such enthusiasm may in part reflect investors’ bad habit of chasing recent performance into year’s end..
Or, it may reflect their desire for a longer-term commitment to stocks.
Donald Trump’s victory could boost US GDP (gross domestic product) growth by 1%.
Many summit attendees said investors need to take a fresh look at how bonds fit into their portfolios, and to steel themselves for possible losses in Y 2017.
“We have a set of investors that has been trained to buy bonds for capital appreciation, and buy equities based on yield. That behavior is going to have to be unlearned.”
Higher yields, and lower prices, are likely for many bond classes, ranging from US Treasuries to junk bonds.
Some of that has already happened, with the yield on the benchmark 10-year US T-Note surging above 2.3% from 1.86% on 8 November, and below 1.4% in July.
Some big investors are holding an above-average 11% cash stake to guard against volatility.
Cash is an asset.
|NYSEArca:SPY||218.5||18 November 2016||-0.49||219.07||219.27||218.29||85,976,300|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Bullish (0.27)||Neutral (0.21)||Bullish (0.44)||Neutral (0.16)|
Have a terrific weekend.
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