We are selling equities from neutral to underweight.
We continue to prefer cash over equities as we have done throughout most of this bear market,and we continue to prefer earnings stability,strong balance sheets and low valuations.After the recent strength in equities,with European equities up 17%and the S&P 500 up 25%from their troughs,we now move 5%out of equities into bonds.Thus,our new asset allocation is +5%OW cash,neutral bonds,-5%UW equities.
The bear market is not over.
Our three signposts to identify the end of the bear market do not flash green.
We wish to wait for fundamentals to be close to trough before turning more bullish.The three fundamentals we
look at are:1)earnings;2)US housing;and 3)banks'balance sheets.Our three preferred measures are:1)
reported ROE ex Financials below its long-run average of 12.8%(latest 17.4%);2)inventories of unsold homes
below 8 months of sales (latest 12 months);and 3)senior loan officer (SLO)survey better than -20%of SLOs tightening lending standards (latest -64%).
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