04.06.09 update

Ned Davis Research

On April 13, NDR recently moved to overweight equities.  So, with a strategic (i.e. long-term) allocation to, say, 50% stocks/ 50% bonds, they would recommend holding 55% in stocks, 45% in bonds.  This was “the first time in two years” they had done so.  Within that overweight recommendation, they favor the following:

  • Style:  favor small-cap over large-cap; favor growth over value
  • Sectors:  favor technology, financials, consumer discretionary, materials; de-emphasize telecommunications, health care, consumer staples
  • Regions:  favor emerging markets and Japan; de-emphasize U.S. and U.K.

Recent strategy piece excerpt

These moves reflect the improved odds that the bear market lows are in place and that a new cyclical [my emphasis] bull market is underway.  The stock market’s recovery has been consistent with the downturns in the extremely high volatility credit spreads and by the upturn in the relative momentum of stocks versus bonds.

 BCA Research

BCA hasn’t yet warmed up to equities like Ned has.  Instead, they’ve focused on upgrading the credit markets.  Specifically, they’re very fond of investment-grade corporate bonds and are now warmed up to high-yield (aka junk) bonds.  At the rate they’ve been taking on increasing risk, I wouldn’t be surprised to see them upgrade equities soon.  Look for any updates on these pages.

  • Neutral on stocks, bonds, and cash.  In a 50/50 mix approach, invest 50/50.
  • Heavy emphasis on corporate bonds; modest emphasis on high-yield bonds

Recent strategy piece excerpt

Moreover, in the last two economic cycles, corporate bonds outperformed equities during the recession and in the early quarters of the recovery.  Equities took the lead only after the default rate had peaked and our Corporate Health Monitor shifted into “improving health” territory.  Neither of these conditions are in place today.