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Ned Davis Research: Maximum Overweight Equities at Trader’s Narrative

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Recently Tim Hayes, the Chief Investment Strategist at Ned Davis Research, sat down for an interview with Ron Insana (sitting in for Pimm Fox). In the interview Hayes outlines NDR’s outlook for the equity market, bond market, commodities and why they continue to be extremely bullish.

In summary, NDR continues to believe that we are in a cyclical bull market that is intact and is recommending to their clients to stay long because they see no real evidence of a change in trend. For more details, check out my notes (or listen to the interview below):

  • vast number of stocks making new 52 week highs
  • not just US markets but around the world
  • it is a broad based global bull market
  • NDR classifies this as a cyclical bull market within a secular bear market
  • a cyclical bull market can go on to 1-2 years - we’re 1 year into it
  • from a long term perspective, we are not yet out of the woods
  • not expecting a deep correction
  • more likely a drawn out shallow correction in the 10-15% range
  • looking for a moderate decline within a continuing cyclical bull market
  • so few signs of divergence in the market to signal the end of the trend
  • risk appetite is returning, tech stocks are doing well, small caps perform well, emerging markets, financials are strong as well
  • not seeing the type of divergence that would signal a major drop
  • first divergence monitor is interest rates - if bond yields break up to 4-4.25% or higher
  • if yield curves flatten from their current steepness right now
  • if small caps or consumer discretionary weaken
  • these type of divergences would signal a turn
  • non-participation of average investor is more evidence of secular bear market
  • some money market outflows have been increasing
  • but still a lot of cash still on the sidelines
  • we’re probably see a “capitulation” but won’t see the kind of participation that came with a secular bull market
  • won’t see people come back in the way that they did but their return would signal another cyclical decline within this larger secular bear market
  • while performance in past decade was abysmal, didn’t get us down to low levels of valuation
  • no single digit PE ratios for example that we saw in the 1970’s
  • no washout that took us to the other extreme (cheap valuation)
  • runaway inflation a distinct possibility due to massive expansion of Fed balance sheet
  • commodities telling us inflation in the pipeline
  • we could see a period of inflation, maybe next year, causing rates up
  • that could send the equity markets lower in 2011
  • gold and commodities are starting to gain traction
  • “China driven commodity demand theme” = secular commodities bull market
  • gold is just about half way from its previous top (inflation adj.) so still upside left
  • NDR is maximum overweight in equities since June 2009
  • NDR switched from market weight to overweight in April 2009
  • want to stay exposed as long as we have such broad participation
  • NDR is also overweight emerging markets
  • correlation between emerging markets and commodities
  • the expected correction could therefore take both of them down
  • NDR sector outlook: overweight energy, materials, consumer discretionary, technology
  • interest rates not a big worries - 10 year T-bill and S&P 500 have had positive correlation for past year
  • only a big move would scare Wall St.
  • a 4.25% may deliver a correction but…
  • a move above 5.25% would cause a major break

Timothy Hayes of Ned Davis Research:
Press play and let it buffer, then jump ahead to the 12 minute mark to listen to the complete interview:

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3 Responses to “Ned Davis Research: Maximum Overweight Equities”  

  1. 1 Alex

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    Also BCA Research, in their asset allocation quant model, are 91% overweight equities in April and zero percent bond. Maybe they will be right again, as always. But this time I am bearish toward mid June and I will uy some put today … :)

  2. 2 Babak

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Thanks Alex, I hadn’t checked in with BCA for a while.

  3. 3 sexytrader

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Thanks for posting this!

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