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Bulls vs. Bears: Investors Remain Divided
The S&P 500 is up 12% this year and has had its best 7 month stretch since 2003 and 2nd best 7 month stretch since 1998. Paul Ebeling believes, at the very least, this should signal a new leg up in the current bull-market in US equities. With that stated, the S&P is not like most markets around the world, which have been in bear-markets for the past 12 months.
Ebeling believes the high level of caution and fear in the markets is unwarranted and represents the continued 'wall of worry' climb that has been ongoing for the past 7 months.
The danger for investors is that if they focus too much on the potential risks, they will end up left on the sidelines when markets move higher. This is exactly what has happened since the beginning of June. Instead of focusing on dangers from Europe, investors should be taking on more risk and focusing on the US fundamentals.
Both the bulls and bears have intense conviction. The bulls cling to hopes of more stimulus from central banks, while the bears look to Europe for the next shoe to drop.
Ebeling reminds us not to ignore the old adage, "You cannot fight the Fed." He does this as the market continues to rise higher and investors and institutions bet the Fed will be forced to act before long.
The US Federal Reserve and the ECB are due to hold meetings amongst their own members during early September. Investors are hoping the ECB will buy bonds of troubled European nations in a bid to ease the debt crisis.
Ebeling also highlights the 2 key defensive sectors: Utilities and Telecoms. The utilities sector is trading at a shocking 24% premium to the S&P 500, compared with an average 5% discount over the last 10 years; and the telecom sector is trading at a 50% premium compared with the usual 5%, according to data his team has compiled.
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