Though the availability of bank credit remains too tight, most impressive to me regarding our economy has been the improvement in the credit markets (particularly spreads). Indeed, Libor as well other credit spreads and gauges are equivalent to their fall 2008 numbers, when the S&P 500 stood at approximately 1,040, almost 15% higher than current levels.
I am also impressed by the appetite, receptivity and the ability of the markets to absorb hefty equity offerings, which not only fills company financing gaps and provides capital for growth but it speaks volumes regarding investors' propensity to accept more risk.
Finally, from a sentiment standpoint, unlike previous market "takeoff" periods in the 1970s and 1980s, the dire sentiment existing in early March has not been materially reversed towards bullishness, which I think is another good sign. Anecdotally, my opinion is that the hedge fund cabal remains materially underinvested and skeptical about the recent "bear-market rally" -- and very frustrated!
The market typically does his best to harm the most investors, and a sideways correction would likely continue to keep the skeptics out of the market and poorly position those investors for the next leg higher.
In this framework, a two-sided market becomes our investment reality, in which money can be made in "playing" the sideways consolidation (both long and short). This means that tactically I plan to be bolder in buying sector- and stock-specific ideas on dips.
While the world's stock markets are no longer on sale, I continue to see improving credit spreads, a general skepticism surrounding the "bear-market rally," growing signs of economic stability, upward corporate profit revisions and a reallocation of large U.S. pension plans out of fixed income into equities as the proximate catalysts to the next leg up in the S&P 500 to around 1,050 by late summer.
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