TOM HUDSON: Until today`s sell-off, stocks had been on a steady march higher,
helped out by stronger economic data. Tonight`s “Market Monitor” thinks it
can last. We caught up with Jim Stack, president of Investech Research at
the world Money Show in Orlando.
JAMES STACK, PRESIDENT, PRES., STACK FINANCIAL MANAGEMENT: Last
summer we had that crisis in confidence that surrounded that August 1
deadline over raising the debt limit and what happened, we had a plunge in
consumer confidence that took the market down 90 percent of the Dow
declining in that correction last year occurred over a three-week period
around August 1. However since then, consumer confidence has rebounded and
the markets rebounded with it, with a surprising amount of technical
strength and also good strength in those macroeconomics statistics.
HUDSON: Do you think the lows that we saw on Labor Day last year are
going to hold through 2012?
STACK: Yeah, I think it will. Going into an election year, the market
is historically stable. In fact, bear markets and recessions are a rarity
in an election year. There`s only one presidential election year since 1940
that had seen a double-digit decline and that was 2008. In contrast on the
other side of the coin, there have been seven presidential election years
that have seen double-digit gains. If you stack up the evidence and you
look at where we are on the political cycle as well as the economic cycle,
the evidence is certainly in the investors` advantage.
HUDSON: But Jim, is there more evidence than just seasonal or
STACK: There is. If you look beyond the macro economic, which I think
people see in the headlines every day, which of course is getting better.
From a technical standpoint, this market is on remarkably firm footing from
a from a breadth or participation standpoint. Advance/decline line hit a
new high ahead of the market index, ahead of the Dow and NASDAQ. In
addition, if you look at leadership, we have a special composite – our
negative leadership composite that`s used to measure downside or the
absence of that downside leadership. It just triggered a signal this week
that carries an 80 percent probability of the market being higher both six
months and 12 months from now.
HUDSON: That seems like a pretty good bet, pretty good odds.
STACK: I think the odds are pretty solid that this year is going to
be a lot more stable than last year and I think it will also turn in
HUDSON: Pretty good. Of course we had pretty easy comparisons. Last
year the market was flat.
STACK: And certainly considering the volatile, what you call roller
coaster ride for investor emotions. It was a tough year for investors to
stay invested and to ride through it.
HUDSON: One of the areas you`re looking at is energy. Is that a
direct play on the economy?
STACK: In a maturing economy, maturing economic recovery, assuming
it`s still intact, which I believe it is, energy is one of those — one of
those sectors that comes on in the middle, latter stages. It`s also the top
performing sector in past presidential elections in years by the way.
Other sectors that tend to do well in a presidential election year
historically speaking, are industrials and financials. Although, I`m a
little bit nervous about the financials just from the systemic debt that
they`re continuing to carry.
HUDSON: Industrials, of course, is also a global story, too. Do you
think the growth we`ve seen in emerging markets will continue?
STACK: The emerging markets are going to do OK this year, single-
digit growth. The U.S., I think, will see a little bit stronger than the
two, the 2.8 percent growth that`s widely forecast. And that again, from
that standpoint, both from the industrial and another sector I`ll toss in,
is the technology sector. I think a lot of businesses and corporations have
delayed their upgrade cycle in the industrial and technology areas for the
last couple of years because they were fearful of this double-dip recession
that everyone has been forecasting. Now that it hasn`t or it doesn`t
materialize, I think that`s why we`re going to see the industrials and
technology be strong performers.
HUDSON: Jim, you`ve been a “Market Monitor” her on NBR for 28 years,
a longtime friend of the program. How would you judge investor sentiment
now compared to all the different market cycles that you have seen?
STACK: In that first program, in September `83, the Dow I remember,
was at 1200, less than 0.1 of what it was today. We go through these
rolling emotions of fear and you can say greed like the late 90s, the dot-
com bubble. This is somewhere in between. We don`t have the extremes of
fear that we had at the 2009 bottom. But I`ll be honest, if you look at
some of the fears and this crisis after crisis that investors haven`t had
to face over the last six to nine months, this is a very fearful time in
the market. Now what`s ironic looking back over those 30 years is that
those fearful times historically often provide some of the best profit
HUDSON: Just, how about disclosures, do you or your clients own the
funds we mentioned?
STACK: Yes, we do, in individual stocks, not in the ETFs.
HUDSON: Jim Stack along with us. He`s with Investech Research.
STACK: My pleasure Tom.