by Michael Tarsala
Jeffrey Saut at Raymond James says he is very aware of all the bearish market arguments cascading from the concrete canyons of the nation’s financial centers.
Chief among those concerns are global economic worries, the market’s complacency that may limit future gains, as well as a Chinese stock market that could be foreshadowing a hard landing for the world’s No. 2 economy.
Yet Saut remains bullish for now, and thinks the benchmark S&P 500 index will continue to climb.
“… The bears continue to misunderstand there is not a linear relationship between the fundamentals and the movement of the markets,” Saut says in his latest market update. “Manifestly, it takes a massive deflationary shock, like what we experienced in 2008, to cause a waterfall decline in stock prices; and, I just don’t see that on the horizon.”
To the contrary, Saut believes that rising interest rates in recent weeks reflect an improving economic backdrop — and possibly the price inflation that could come with it. Inflation is typically positive for the nominal prices of stocks.
Saut notes that the S&P Total Return Index (SPXTR), which includes the dividends from stocks in the index that pay them, is close to breaking out to all-time highs.
Source: Raymond James
He thinks the S&P 500 (SPX) could soon follow suit:
… If the SPX can decisively break out above its April highs of 1420 – 1422 it potentially brings into view targets above 1500. And while it is doubtful the SPX can breakout above those “highs” on its first try, I think it will indeed eventually break out.
Of course, the grind higher from the June 4 low has been accompanied by total disbelief among individual and professional investors. That is reflected not only in the flow of funds by individual investors out of equity-centric mutual funds, but in the latest Commitment of Traders report that shows the “pros” have been caught heavily on the short side into a rising equity market.
So the fuse is burning and I think it is just a matter of time until the SPX travels above 1422.
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