Describing himself as “still a bit surprised at how cautious and bearish some investors remain,” Calamos Senior Portfolio Manager Michael Grant says, “This is not normally the mood in which bull markets end.”
“There’s enough life left in this equity cycle to make money,” Grant noted at a recent meeting with financial advisors. “We anticipate a cyclical bear emerging later in 2018, but we are simply not there yet.”
Risk-on/risk-off positioning is a challenge for advisors, he acknowledged, as clients watch equities move higher.
“It’s better to be properly positioned before clients start to push for more aggressive exposure,” says Grant. “My suspicion is that, for the next six months, risk-on pressures from clients will dominate. And for now, the clients could be right.”
Grant reviewed the key points to his bullish outlook, first expressed in 2016:
- 2017 is the first post-crisis year that markets are enjoying the fundamentals of stable and synchronous global GDP. This is why the character of equity returns has become less volatile.
- Equities are taking their lead from the earnings cycle. As long as the year-over-year growth in sales and earnings is improving—which has been true since Q1 2017—market corrections are typically modest. The autumn months might see some consolidation, but sharp sector rotation is the greater risk, he said.
- The weak U.S. dollar is a meaningful tailwind. “If you look back to Q4 of 2016, dollar strength subtracted about 2 points from revenues for the U.S. corporate sector. In Q4 of this year, dollar weakness will add about 3 points to sales—an impressive swing of almost 5%.”