“Global capital markets are the world’s biggest forecasting mechanism,” Stephen Wood, the New York-based chief market strategist for North America for Russell Investments, said in a phone interview. His firm oversees $152 billion. “A significant portion of the recent rally in equity markets has been in anticipation of an aggressive monetary response by central banks globally.”
When asked how they felt about their circumstances compared with the start of the Obama administration, 45 percent of Americans said “better off” versus 36 percent for “worse off,” according to a Bloomberg National Poll taken June 15-18. The rest said their circumstances were about the same or they weren’t sure.
Four years ago, the S&P 500 was tumbling in the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy filing and the government bailout of American International Group Inc. It reached a low of 676.53 on March 9, 2009, and the economy contracted 3.1 percent that year, the most since 1946.
Americans have recovered from losses in their retirement funds during the bear market. The average 401(k) balance rose to $72,800 in the second quarter from $62,400 in 2008, according to data from Boston-based Fidelity Investments.
“Our economy and our banking system are in better shape than others,” Chanos said last week in an interview at Bloomberg’s headquarters in New York. “I suspect that the surprises will probably be on the positive side in the U.S. market.”
U.S. stocks are in the fourth year of a bull market that has more than doubled the value of the S&P 500. Earnings in the index have increased for the past 11 quarters, with more than 71 percent exceeding analyst projections for the three months through June 30, and are forecast to reach a record $103.53 a share in 2012, according to analysts’ estimates compiled by Bloomberg.
Chanos, who is based in New York, cited a recovery in the U.S. housing market and improving auto sales as evidence of the strengthening economy. An index of pending home resales exceeded the median forecast in July, rising to the highest level since April 2010. U.S. auto sales in August beat analysts’ estimates and put the automakers on a pace to exceed 14 million vehicles this year, the best performance since 2007.
“When I take a look at markets, the economy measured in lots of different ways and so on, I think we’re dramatically better off than we were,” Cohen, the senior U.S. investment strategist at Goldman Sachs, said in an interview at Bloomberg’s headquarters in New York last week. “The market is telling me that investors are generally confident that we’re on the right path.”
Rising profits have kept equity valuations below the historic average. The S&P 500’s price-earnings ratio of 14.9 is 9.1 percent below the five-decade mean, data compiled by Bloomberg show. The last two times U.S. equities were this inexpensive compared with global stocks, in 2003 and 2009, gains in the S&P 500 lasted for at least three years.
DoubleLine Capital’s Gundlach, who correctly called an end to the five-year property boom and said falling real-estate prices would weaken the U.S. economy, said last week that he’s considering adding equity funds to the bond lineup at his firm.
“Equities may be challenged in the near term,” Gundlach said last week at the Bloomberg Markets 50 Summit in New York. “But I doubt you’re going to have this lost decade or lost 15 years of equities again.”