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Tags: Cantor Fitzgerald | Peter Cecchini | stocks | market

Cantor: 5 Reasons Being Bullish on Stocks Is 'Almost Impossible'

By    |   Thursday, 12 March 2015 11:00 AM EDT

Cantor Fitzgerald said the outlook for stocks is so bad that it’s “almost impossible to be bullish here.”

Deteriorating company profits expected by analysts may even pressure stocks into a correction, according to the Wall Street firm.

“Earnings are throwing up a bright red caution flag, and we are suggesting that not only are hedges in order but we also like downside trades standing on their own merit,” Peter Cecchini, chief market strategist at Cantor Fitzgerald, said in a March 10 report obtained by Newsmax Finance. “Pullbacks are highly correlated to earnings performance.”

A 10 percent drop in the Standard & Poor’s 500 Stock Index would bring it to 1,905 from its record close of 2,117 on March 2. The market benchmark hasn’t had a correction of 10 percent or more since 2011, according to Yardeni Research Inc.

Cecchini said recent downward revisions to earnings estimates for companies in the S&P 500 are reasons for caution. Analysts forecast a 4.6 percent decline in first-quarter profits from a year earlier. Back in December, they estimated 3.8 percent growth. Their second-quarter earnings estimates were rolled back to a 1.5 percent decline from a 5 percent gain, according to FactSet.

Of the 96 companies that provided first-quarter profit forecasts, 81 estimated that earnings will decline — or about 84 percent of companies. That’s higher than the five-year average of 68 percent and the long-run average of 71 percent for a given quarter, according to FactSet.

Cecchini offered five reasons not to be bullish:
  1. The Federal Reserve is likely to raise interest rates from record lows sometime between June and September.
  2. Large-capitalization and small-cap stock valuations are elevated.
  3. Global growth keeps dragging, as demonstrated in the purchasing managers index and China’s revised estimate of gross domestic product growth (lowered to 7 percent from 7.5 percent).
  4. Geopolitical instability keeps building in Greece, Ukraine and Europe more broadly.
  5. Commodities volatility continues to trend higher, even when considering recent rallies in industrial commodities (copper, iron ore).
He also said the recent rally in stocks to record highs was notable for the lack of breadth. That is, the gains depended on a handful of companies, such as Apple Inc. Apple makes up 10 percent of the value of the Nasdaq Composite index and was responsible for about two-thirds of its gains this year.

“About one in five hedge funds owns Apple and about 12 percent have it as a top 10 position,” Cecchini said, citing research by Goldman Sachs Group Inc. “The concentration of fast money in and the reliance of a broad index upon one stock is concerning.”

Investors who are determined to buy stocks may want to consider the information technology, health care and consumer discretionary industries, said Howard Gold, an investment adviser who writes for MarketWatch.

“By these key measures — gains during this bull market and since the last market peak and recent performance — consumer discretionary, health care and technology remain the cream of the crop,” he said.

He suggested allocating part of an investment portfolio to funds that track those industries as a way of gaining exposure to them.

“If you buy diversified funds or ETFs and don’t chase faddish biotech or social-media stocks, these broad sectors are the place to be as this bull market ages,” he said. “Aggressive investors might want to sell some of their index funds and put up to 10 percent of their money in each sector. For the rest of us, 5 percent in each is fine.”

© 2024 Newsmax Finance. All rights reserved.

Cantor Fitzgerald said the outlook for stocks is so bad that it's "almost impossible to be bullish here." The outlook for deteriorating company profits may even pressure stocks into a correction, the Wall Street firm said.
Cantor Fitzgerald, Peter Cecchini, stocks, market
Thursday, 12 March 2015 11:00 AM
Newsmax Media, Inc.

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