Updated: May 3, 2013 12:14PM
Originally published: August 7, 2001
Last week I warned that the lazy days at the end of summer were no reason to let your guard down in this volatile market, because the possibility of a steep market decline could not be ruled out.
No sooner had the column been posted when a breakout move did occur--to the upside. So this week let’s check in to see what some notable bulls--from investment advisers to market strategists to fund managers--are saying about the current market advance, both from a trading and long-term investing perspective.
Bert Dohmen--who writes the Wellington Letter (808-545-2243 or www.dohmencapital.com)--has an excellent track record in this bull market. He sent subscribers another bullish online message last Friday noting “even those who are still lounging at the beach will now pay attention and get nervous about missing an important up move.”
Dohmen points out that important indices such as the S&P Mid-Cap, NYSE Composite, Dow Jones utilities, S&P Small-Cap and the Value Line A index all reached new highs. Another good sign: volume on the upside beat volume on the downside by 2 1/2 to 1 on the Nasdaq, and by a ratio of 6 to 1 on the Amex.
His conclusion for traders: “All signals are green for the next three weeks.”
Dohmen notes that there are virtually no IPOs scheduled until late September, at which point an influx of new offerings could produce a pause in the market. As for what to do about fallen tech stocks: “Once a stock has gone through a deep valley, and then returns to where you bought it, you should buy more rather than selling.”
Over at Donaldson Lufkin & Jenrette, noted bullish market analyst Tom Galvin remains stoutly optimistic about the market.
He reminds investors that the last time the Fed ended a string of rate hikes back in February 1995, the market soared 25 percent in the next 12 months. He’s looking for the same bullish response to current indications that the economy is slowing, and the Fed has stopped boosting interest rates. He’s predicting a replay, with the Nasdaq gaining 25 percent before year end.
As for fears that the market is “overvalued,” Galvin scoffs: “Most stocks are not valued differently from five years ago, but the higher concentration of tech firms [in market indices like the S&P 500] is exaggerating perceptions of `market’ P/Es. The valuations of most stocks today should not prevent an equity market replay of 1995-1996, particularly if inflation and interest rate expectations come down.”
How is this bullishness reflected in the actions of money managers? I visited with Art Bonnel of the 4-star Bonnel Fund (800-US-FUNDS or www.usfunds.com) at the Morningstar conference here in June.
At the time, he viewed the summer ahead as a great opportunity to accumulate stocks, especially in the biotech, semiconductor, and telecommunications sectors of the market. His mid-cap growth fund is up 62 percent for the past 12 months, though only 8 percent year to date. (And at this point I will disclose that I invest in it.)
Bonnel has always had an optimistic view of the market. Back in 1995, when the Dow was trading around the 5,000 level, he predicted that it would hit 10,000 by the year 2000--and even had T-shirts made up with that forecast.
When the 10,000 target was met 18 months ago, he upped his forecast to Dow 20,000 by 2006.
Bonnel’s current advice: “Investors need to continue to focus on the long-term because that is where the real gains are made in the market. The market’s going to go a lot higher and the patient and disciplined investor is going to be well-rewarded over the next 5-7 years.”
Does he continue to buy stocks, even as prices move higher? “Absolutely. Earnings are going to continue to grow. Money is going to continue to flow into retirement accounts, and there is more demand for shares than there is supply because mergers continue to eat up shares,” he said.
“Boomers have another 10 years before they even start to think about liquidating, and biotech assures us that we will live longer--and therefore need to invest more money to support those longer lives.”
“This is not rocket science, it’s simple logic. The combination of earnings growth and demand for shares will continue to fuel the bull market.”
And that may be the Savage truth.
Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail at savage
@suntimes.com. Her third book, The Savage Truth on Money, recently was published by John Wiley & Sons Inc.