Veteran market strategist Jeff Saut thinks the Federal Reserve Board will defy expectations and not raise rates next month.
At a time when many are voicing fears about a looming recession, Saut thinks the worrywarts are all wet. “I think the economy is stronger than most people think,” the former chief market strategist at Raymond James said. In his view, it’s a “Goldilocks’ economy”—not too hot and not too cold.
Indeed, the closely watched Atlanta Fed’s latest reading on second-quarter GDP came in at 1.9 percent. That would be down from the first quarter reading of 3.1 percent for an average of about 2.5 percent in the first half.
Retail sales numbers have displayed some weakness this year and Saut believes retail investors are “scared to death.” Still, corporate earnings are coming in better than expected. Anecdotally, Saut found hotels and restaurants fully booked on a recent trip to New York City.
He also maintains that the current secular bull market will continue well into the next decade, with the S&P 500 reaching 5,400 by 2025. That would translate into an annualized return exceeding 10 percent for the next six years.
Secular bull markets, in Saut’s view, tend to last 15 to 20 years. Saut also prefers to measure them from a long-term perspective and doesn’t count a single 20 percent correction as a necessary signal that a bull market is over and a bear market has begun.
Two examples he cites are the 1987 stock market crash, when equities fell 30 percent in four days, but proved to be a brief blip in the extended 1982-2000 bull market, and the 1962 steel crisis. In the latter incident, a dispute between President Kennedy and steel manufacturers over steel prices resulted in another sharp 30 percent decline in equities, but the 1949-1966 bull market resumed fairly quickly.
Saut also views the methodology some market historians use to date bull markets as somewhat arbitrary. For example, one could argue the 1982-1999 bull market began in 1974 when it reached the trough of what most observers consider the 1966-1982 bear market. Similarly, it could also be argued that the current bull market began in 2013 when equities pierced through their previous peak set in 2007.
Dow Theory, which holds that if either the Dow Industrial Average or Dow Transportation Average sets a new high, it must be confirmed by the other Dow index within a reasonable period of time, is an important indicator of future signals, in Saut’s view. In November 2007 and December 1999 Dow Theory pointed to a coming bear market. At present, the “primary trend is up,” he said.
Looking across sectors, Saut believes that midstream MLPs are selling at their lowest levels in 20 years. He also likes the integrated energy companies. “They are under-owned and I don’t think oil prices are going down much more,” he said.