Bob Lee, a Chief Equity Strategist with People's United Bank, joins us to answer some investment questions.
What are you telling clients about your outlook for stocks?
· We've been overweighting stocks in client portfolios throughout 2012. And, though the market is up nicely this year (16% on the S&P 500) we still think stocks are attractive today, selling at only 13X earnings. Stocks today are cheaper relative to bonds than they have been in some time and there are many offering attractive dividend yields as well
· How do stocks match up with bonds today?
Dividend yield on the S&P 500 today is about 2.0%, higher than the yield on a 10 year Treasury bond (1.7%). In addition, you benefit from the long term growth in earnings and dividends-which has averaged about 7% per year. Of course, stocks are more volatile. We tell our client to look past near term volatility, focus on long run returns versus inflation
· Why does it seem like this has been a stealth bull market?
People have lived through two bear markets since 2001. They're not quite ready to move back in, trust the market-they hears about the flash crash, that unemployment is high. But stocks move up when earnings improve, and earnings have more than doubled in last three years, improved productivity. Those who were too cautious, fearing the worst, have missed out on a doubling of stock prices over that time. Being "too cautious" can be dangerous too because your investments may not keep up with inflation.
· What investment themes interest you today?
The recovery in housing-two large home builders have reported strong earnings in the past week (KBH and LEN). Inventories of homes for sale are at only 6 mos supply, prices are rising, and mortgage rates are extremely low, rents are high. CEOs are telling us the recovery is well under way and we agree.