A Stealth Recovery

In the fall of 2010, I had written that several indicators suggested the U.S. was entering “stealth economic recovery” mode.   This “stealth” recovery coupled with low interest rates and changing demographics were going to usher us into “the age of the Dividend Darlings -- companies that pay sizeable, sustainable, and growing dividends.”  Investors would not only replace their income exposure to lower yielding bonds, but also focus on growing income in the equity market.  At the time, I alluded to “a new select group of large cap stocks” that would “resemble the Nifty Fifty” of the 1970s.  As I promptly implemented a new investment strategy with a focus on total return stocks, which have been big beneficiaries in this environment, there were also many signals that we had entered a secular bull market in equities.  In my view, not much has changed since that time.  In fact, in the near term, there is little that points to an economy in decline or an equity market headed for ‘impending doom’.  Although there is no shortage of pundits predicting the next “big correction”, I maintain that we are headed for better times (not worse) in both the economy and stock market.

 Investment strategist Richard Bernstein recently wrote, “Bear markets are made of tight liquidity, significantly deteriorating fundamentals, and investor euphoria.  Although the Fed is starting to reverse course, there are no signs yet of a significant tightening of liquidity.  Rather, the data are beginning to suggest that private sector credit growth is starting to replace the Fed as the provider of liquidity.” [i]  Although treasury yields have come down, credit spreads have tightened as well, which is significant and a potential signal of stronger growth ahead.  Market strategist Dave Rosenberg recently highlighted some improving data points that suggest the economic backdrop is not the main driver of lower treasury yields.  “Jobless claims are now below 300k for the first time since mid-2007 and we have just experienced three months straight of 200k+ payroll gains (last time that happened in the last cycle was early 2006).” [ii] Furthermore, he highlights the improvement of the Dow Jones Transport Index, which just recently hit a new high.  Again, these data points suggest a strengthening (not worsening) economy. 

As one journalist put it, “Despite calls for a big correction, some analysts say the stock market may already be correcting—it's just going sideways instead of down.” [iii]  This may be a key indicator of the strength of the equity market.  As the momentum (or “story” stocks) sold off from their peak in March, a rotation ensued in which investors sold “momentum” in order to buy large cap blue chip companies.  This rebalancing speaks to the overall health of the stock market.  Perhaps some investors are slowly realizing that one does not have to pay massive premiums to obtain growth, as the growth universe has expanded exponentially in the present bull market.  Nevertheless, while investors try to navigate the market, I continue to find opportunities.  As the American writer Gertrude Stein once said, “For a very long time everybody refuses and then almost without a pause almost everybody accepts.”

[i] Richard Bernstein. Eaton Vance. Worried about the Downside. May 2014.

[ii] David Rosenberg. Gluskinsheff. Breakfast with Dave. May 21, 2014.

[iii] Pratti Domm. CNBC. Why stocks could be in a sideways correction. May 21, 2014.

The Rosenau Group is a team of investment professionals registered with HighTower Securities, LLC, member FINRA, MSRB and SIPC & HighTower Advisors, LLC.  This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of HighTower or its affiliates.  This is not an offer to buy or sell securities, and HighTower shall not in any way be liable for claims related to this writing, and makes no expressed or implied representations or warranties as to its accuracy or completeness.     

Pamela Rosenau, Managing Director and Chief Equity Market Strategist at HighTower and Chief Investment Officer at the Rosenau Group has over 30 years of experience in the financial industry. Ms. Rosenau focuses on equity portfolio management strategies. As a result of her extensive knowledge and expertise in the equity markets, she was named the Equity Market Strategist for HighTower. In addition to this role, she performs due diligence on the firm's third party research relationships and continues to add, monitor, and prune research providers where necessary. Prior to joining HighTower she worked for various sell-side firms beginning her tenure at Wertheim & Co./Schroders Plc.

Ms. Rosenau was ranked #14 in Barron's 2013 Top 100 Women Financial Advisors. She was also chosen for Barron's 2014 Top 1,200 Advisors list, ranking #52 out of all financial advisors in California. Ms. Rosenau holds series 7, 63, and 65 licenses. 

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