Investors are 'profoundly underinvested' in stocks, says Raymond James' Jeffrey Saut

A week-long stock market rally may be underway, but scores of investors may be missing out on it.

Raymond James Chief Investment Strategist Jeffrey Saut is out with a note, writing that the first part of the week has the potential to be strongly positive for stocks based on his latest technical models.

But there's a problem.

"People are still profoundly underinvested," Saut said Monday on CNBC's "Trading Nation."

The stock market is off to a good start this week. The Dow closed Monday up about 90 points, locking in its first three-day win streak since February. The S&P 500 and Nasdaq also ended in the green.

Plus, year-to-date 9 out of 11 S&P sectors are positive.

Saut says earnings and pro-business initiatives on Capitol Hill are major reasons why the stock market has a lot more room to run.

"Earnings are going to continue to surprise on the upside. I think the valuations are not all that skewed based on that earnings growth," he added.

According data compiled by CNBC, if overall earnings growth remains above 10.3 percent, it'll be the best quarterly growth since 2011's third quarter. The data also show revenue is growing at the strongest rate since the fourth quarter of that year.

Saut predicts President Donald Trump will also have a significant role in the rally because his tax cuts and reform legislation will likely become a reality.

"We're trading around 18 ½ times this year's earnings. If we do get corporate reform, Thomson (One) suggests that for every 1 point drop in the corporate tax rate, it hypothetically adds a $1.31 to those earnings," he calculated.

Earlier this year, he scaled back his near-term market forecast.

Saut, who believes there's as many as eight years left in this bull market, had gone to cash the end January. He made that decision after models showed a pullback was on the way.

He said on April 20 on CNBC that the pause in the Trump rally would end soon. Since then, the S&P 500 is up more than 1.5 percent, and the Nasdaq has risen nearly 4 percent.

Even though Saut acknowledges he's a long-term secular bull, he says the rally doesn't come without risks.

"I worry about geopolitical events. I worry about this missile test that went off over North Korea over the weekend. I have to say that's my biggest worry," he said.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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