Stocks: Good News and Bad News
04/24/2013 8:30 am EST
In his stock outlook for 2013, Neil George is heartened by the recent money flows into stocks, but he warns that there are many other factors to consider.
Neil, talk to me about the resurgence in stocks. The early part of this year we saw quite a resurgence of stocks...and is it true that individual investors are coming back to their market?
Laszlo Birinyi and several of the speakers at our recent conferences have talked about resurgence in the private investor, the individual investor coming back to stocks for a long period of time. How long have they been out, and what are they doing today?
Well, Charles, as you know, there’s been sort of an exodus in the last few years of the financial crisis, where basically you’ve seen about $1 trillion pulled out of the share market by households.
A trillion dollars.
A trillion dollars. And then on top of that, in the recovery that we’ve seen from 2009 to the present, the average household did not participate in that rally—and in fact, even during 2012 there was a continuous exodus and pulling of cash from stocks and stock funds.
By how much?
We’re looking at in the hundreds of billions. And particularly even in December alone, we saw a particular surge of some $50 billion pulled out.
In December alone, as reported by a Lipper study of cash flows going into funds and individual stocks. Now, in January we saw a major turnaround, in which we saw an actual plus come out, with about $7 billion coming into the stock market.
The irony of this, of course, is that the average individual investor on their own typically is not really the best market timer. They tend to buy when professionals are selling, and they tend to be selling when other people should be buying.
I find it interesting that just as they’re coming back in the marketplace, we’ve already seen a weaker GDP number. We’re also seeing some indications of a further pullback in government spending, and that has a very negative connotation, because if you look at the last few years—2009 to date—the US government spending on the federal level alone has actually dropped from its recent highs of about 26% down to current 22% to 23% of GDP.
With further cuts already basically being factored in to defense contractors and other contractors through the US government, you might really be looking for some further softness in the economy. And so it’s kind of a troubling time, I think, for the average investor to want to be stepping in, right when people want to have a little more concern.
What’s your expectation for year-end 2013?
I think there’s still a lot that still can happen. You still have sort of the unknowns of what’s going to be happening in the government...the unknowns could be happening in government regulation. It could be coming from executive orders.
But all that said and aside, my general recommendation for folks is to try to step away from being really too tied to the general stock market, and spend more time looking at some of the other alternatives to get you away from that. One of the things I’ve been suggesting is people actually avoid stocks in their entirety for the next year, because there are such great opportunities in some of the other alternatives to common stocks, principally in the bond market.
The municipal bond market has been doing very, very well, and actually you’re seeing taxes and tax revenues are increasing, giving some excellent returns on the muni side. And there are some very easy ways we can play it in the closed end fund area.
I think some of the other areas would be some of the more sustainable companies that aren’t really common stocks, but are some of the passthroughs, some of the REITs, some of the MLPs, and so forth, that are separate and distinct from what happens to the S&P. I think we want to be a little more defensive. Focus on income and I think we’re going to be able to get through, even if we see a further softening.
So you don’t see the stock market doing very much in 2013?
I would not be as enthused right now, given where things are starting for the general S&P, certainly not the same sort of performance we’ve had in the past year.