Want to know why the markets are just off historic highs, but somehow it doesn't feel that way? Look at Goldman Sachs portfolio strategist David Kostin -- he recently met with 50 clients... and noted a few inconsistencies in the feelings of those managers.
1) Overall view. Negative, but managers were reluctant to be defensive for fear of missing a Q4 rally... while many like tech, materials, financials and industrials, "No client was interested in owning Consumer Discretionary" (retail, autos).
2) Emerging Markets. Most still view it as compelling, but admit valuations are probably not justified.
3) Oil. Most think energy prices will come down... almost no clients agree with the Goldman forecast of $80 a barrell oil in 2008 and $90 in 2009. Consensus was for oil at $65(!).
4) Financials. Many think the recent underperformance makes them compelling, that Bernanke lowering rates will benefit financials, but many admit this view is controversial.
What does it all add up to? Confusion. I have a rule (Pisani's Second Law of Broadcast Journalism): You know you're in trouble when your best sources call and ask YOU what's going on. That's what's happening now; that's why we have a stock market at record highs, but it doesn't feel that way -- the uncertainty takes the edge off of some of the bullishness.
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