The current bull market in US equities is perhaps the most ‘unloved’ rally of the past 40 years, according to industry veteran Ed Cowart.
Speaking in his latest update, Cowart said many are under-invested in the US market and would welcome a pullback to allow them to invest in equities.
‘I would make the general observation, based on my time in the investment business, that this is the most unloved bull market we have ever seen,’ said Cowart, who has 42 years of industry experience.
Cowart, who runs the Nordea 1 - North American All Cap fund on mandate, said US stock prices have advanced a long way since the market lows of 2009 but points to earnings growth, which he says has broadly kept pace with the market rises.
He said: 'There is no denying stock prices have advanced a lot from the depths seen in March 2009 but we must not lose sight of the fact earnings have advanced along with prices.’
'In 2009, S&P 500 earnings came in at $57; for 2013 we expect a figure of about $107, more than doubling in four years.'
While Cowart accepts share prices have outpaced earnings overall over the period, he still believes it is hard to make the case that the US market is now overvalued.
'In the aftermath of a severe financial crisis precipitated by over-leverage and widespread credit defaults, economic growth is slower than average as the excesses of the prior cycle are corrected.’
'After such events, economic growth has averaged about 2% rather than the 3-4% or higher, after more typical, inventory or Federal Reserve-induced recessions.’
Clean bill of health for corporates
Cowart points to corporates as one of the brightest spots in the slow recovery environment.
'Balance sheets, cash on hand, profit margins and the level of profits have never been better. Corporate profits have recovered and now exceed pre-recession levels.'
He said: 'Should house prices continue to recover, it is likely some acceleration in economic growth next year is possible.'
Combined with modest employment growth and income growth, Cowart expects to see a further rise in GDP.
'If companies could bring profits back to all-time highs at 2%, where would profits be with growth at 3%? It seems clear to us that the answer is 'higher.'
'Based on our time in the investment business, this is the most unloved bull market ever. There is an old saying that the market will do whatever it takes to frustrate the maximum number of people.'
'Right now, the most frustrating thing the market can do - and has been doing - is to keep going up and not let the under-invested have an easy entry point.'
Over the year to the end of December 2013, the fund returned 40.5% compared to a 31.2% return by the average manager in US dollar terms.