The market recovery from the current recession has begun, says Joe Terranova, chief market strategist at Hartford-based Virtus Investment Partners.
In his most recent market commentary, Terranova says investors should expect the market to play out much like it did in 2003.
At the end of June, Terranova noted that market activity during March and April marked the shake out of the “Armageddon Trade.” Despite the pullback caused by government issuance of large amounts of debt, the markets are now poised for a bounce back, which may resemble the market rebound of 2003.
“Right now, we hear the same sort of thing: analysts are once again calling for the deep dive,” Terranova said. “I don’t see it. I think many of these so-called ‘market experts’ are still too focused on the headlines of January and February about the challenged economy and the challenged consumer.”
Terranova points out that the Dow Jones Industrial Average hit a low of 7,500 in March 2003, caused in part by the SARS outbreak and the beginning of the Iraq war. Yet by year-end, despite the doom and gloom in analysts’ forecasts, the Dow still cracked 10,000.
Today’s recovery is being sparked by solid performance in asset classes such as emerging market equities, commodities, high-yield corporate bonds, and currencies.
Terranova said that emerging market stocks are up more than 40 percent year to date, boosted in part by the stimulus package in China. In addition, India and Brazil, Chile, and other South American countries have been and should continue to be a boon for investors over the next 12-18 months.
Terranova favors high-yield corporate bonds, which have returned as much as 35 percent to investors this year, and thinks investment-grade bonds may provide a big opportunity, too.
He also suggests more exposure to currencies. He expects the greenback will remain weak and investors who want to trade against the dollar should look to commodity and emerging-market currencies.
Despite these opportunities, Terranova says that the outlook isn’t all rosy. While he doesn’t foresee inflation as a near-term threat and believes corporate earnings are promising, he considers that the U.S.’s reliance on foreign oil still remains a threat. As long as the government drags its feet on a new energy policy, he says it will slow the recovery.
“The continued reluctance to designate natural gas as the primary bridge fuel to a more renewable future does not bode well for this recovering economy. Until this administration develops a reasonable strategy, investment in energy — across the broad energy landscape — remains one of the top themes for investors,” Terranova said.
