Markets have suffered through some recent volatility, but U.S. stocks may be nearing the end of the current correction, according to veteran market observer Bob Doll, chief equity strategist at Nuveen Investment Management.
History is on the side of the bulls, in his view.
Doll said that since 1950, the S&P 500 has thrown off positive returns in every six-month period following the last 16 mid-term elections, with a remarkable average gain of 16 percent.
Doll said the downturns of last week were orderly, and that the snapback favored cyclical issues over defensive stocks, with an attendant rise in commodity prices.
"We view all of these factors as further evidence that the correction may be in the process of ending," he wrote in his
weekly client commentary.
So far, the S&P 500 has seen four brief corrections in 2014, falling 7 percent in January, 4 percent in April, 5 percent in August and most recently 10 percent from the Sept. 19 intraday high through mid-October.
"Despite the most recent decline, however, we believe fundamentals have not changed significantly. The proximate cause for the current pullback appears to be heightened concerns about European growth and deflation, but these issues are not new," Doll explained.
"Likewise, concerns over Federal Reserve policy, geopolitics and corporate earnings have been present for months. In our view, the current correction has been more technical in nature."
Doll ticked off some positive props underneath equities: energy prices are falling sharply, which he said "acts as a de-facto tax cut for consumers," interest rates are still low and, in his view, corporate earnings should hold up as long as U.S. economic growth continues.
"At the end of the day, we still believe that equities appear attractive, especially relative to Treasurys. At present, the dividend yield of the S&P 500 Index is 2.1 percent, which is pretty close to the yield on the 10-year Treasury. This means that stocks are producing roughly the same current income as government bonds, but stocks also offer the prospects for growth and dividend increases, which bonds do not."
Billionaire hedge fund operator Paul Tudor Jones is also still bullish on U.S. stocks.
He told investors he expect U.S. equities will outperform other global stock markets for the rest of 2014, even though he believes the dollar has topped out and global credit is in poor shape,
Bloomberg reported.
Meanwhile, Sam Stovall, chief equity strategist of S&P Capital IQ, offered data showing the stock recovery could take a while, according to
MarketWatch.
Stovall noted the index on average has needed two months to come back from a downturn of 5 percent to 10 percent, and it's taken an average of four months to recover from a correction of 10 percent to 20 percent.
Given that stocks through mid-October completed a 10 percent downturn, the S&P data suggests it could take U.S. stocks until mid-February to bounce back fully to its recent highs.
Of course, that's well within Doll's time range for a healthy bounce upward by the end of six months following the November mid-term elections.
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