Time to Follow Goldman and Abandon Bonds?
Goldman Sachs made a sweeping statement advising investors to buy stocks and say good-bye to bonds in a report released on Wednesday. Goldman projected that the prospect for future stock returns relative to bonds is at a generational high.
But while excitement has stirred within the stock market , many investors are hesitant to leave bonds behind.
Stuart Oakley, Head of Emerging Markets FX Trading at RBS, is one of many who are skeptical of Goldman’s report. "I think it is fairly questionable to just jump wholesale into stocks right now. If you look at some of the technical indicators, stocks do look a little bit over-bought," he told CNBC.
Oakley warned traders not to get carried away in the short-term. "I think you probably get a better short-term entry level, but longer-term, multi-week, let’s not kid ourselves," he said. "This is purely liquidity driven. Liquidity is not going to be withdrawn for a very long time —enjoy the party while it’s there."
Gene Peroni of Advisors Asset Management supports Goldman’s bullish claim however.
"When we look at the behavior of many stocks individually and the leadership sectors, there has been good self-police of the excesses on an on-going basis and good rotational consolidation. I think the likelihood of a steepened, sustained decline from here is quite small," he said.
Peroni explained that the current strength of the market stems from the continuity and diversity of the current market cycle. "Many of the sectors that drove the market out of the 2002 bottom also drove the market out of the 2008 bottom. I think we’re still in that same cycle," he said.
"It is a very powerful cycle because it is not dependent on any one microthematic event or situation. In other words, it is not dependent on technology or agriculture orenergy — all of those and other areas are doing very well. I think that this market still has more to go on the upside." Peroni explained.
Even in the midst of the euro zone debt crisis and the potential contraction of growth in China, Peroni remains confident in the future.
"I think a lot of the bad news has already baked into the market here in the U.S.," he said. "Many of the international companies that do have significant non-U.S. revenues are among the leadership in this market. The market seems to be telegraphing that looking toward the horizon there is some better news ahead, better data ahead."