Harris Bank chief investment officer Jack Ablin, who cut back equities holdings in early August, says it may be time to start considering a reentry point.
Ablin said there are several things that could get him to increase stock holdings. "It's kind of a combination of either the values get cheap and we say we'll just own it...Or there's some resolution (of the Greek debt crisis), or there's some momentum. It's some combination of those. If the market goes down 9 percent from here, I don't care what Greece does. We're just going to start buying," he said.
Ablin said the market is currently pricing a 25 percent earnings decline next year for the S&P 500, based on a forward P/E of 15. He said it also is pricing in a 50 percent chance of recession over the next four quarters.
"If you have a time horizon that exceeds five to 10 years, then now is a good entry point. If you are like us, and you're a little more tactical, I would encourage a wait and see. In my view, I don't see how the market puts Europe behind it without a Greek default," said Ablin.
Ablin sold about 10 percent of his equities holdings across all his strategies when the S&P 500 was at 1220 on Aug. 4. The S&P had triggered one of his sell signals, when it fell five percent below its 200-day moving average.
After that call, the S&P continued its decline, hitting an intraday low in August of 1101. On Monday, the S&P was at 1162, up 26 points on optimism European officials would find a way to solve the Greek debt crisis and help the euro zone banks that hold peripheral sovereign debt.
"While we're not predicting it, a reading of 1050 on the S&P 500 would equate to a 30 percent earnings decline and, in our view, would represent an attractive entry point. The bad news is that would require an additional 9 percent price decline from current levels," according to Ablin.
Ablin says he remains positioned in large cap growth stocks, but is underweighted in almost every other category. "Right now, we're going to take another look at emerging market stocks...They are finally trading at a discount again. When we got out of them 18 months ago, they were trading at a premium to the U.S.," he said.
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