Hugh Johnson: Today's Stock Market Resembles 2007

Friday, 23 May 2014 09:19 AM

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With current stock prices near record highs, the market resembles 2007, when major indexes hit all-time peaks in October and then endured a wicked slump for the next 1½ years, says Hugh Johnson, chief investment officer of HJ Advisors.

The S&P 500 closed at 1,892.49 on Thursday, within 1 percent of its record peak.

As for the similarity to 2007, "you look at sector performance, and you see things like consumer cyclicals, industrials, technology stocks — the so-called economically sensitive bull market sectors — are not doing well," Johnson told Yahoo.

Editor's Note: 38 Trades That Could Turn $1,000 Into $49,000

"And defensive sectors — utilities, telecommunications, consumer staples — are at the top of the list.”

In addition, large-cap stocks are outperforming small-caps, and credit market spreads are widening, he noted.

"All of these are signs that investors are starting to play it safe. And investors are usually right. They're signaling more difficult times to come."

To be sure, with the economy now stronger than it was in 2007, there's no need for a wholesale bailout from stocks, Johnson argued.

Instead, "bring down your weight" in consumer stocks, technology stocks, industrials and small-caps, he suggested. Go for large-caps instead, such as utilities and telecommunications stocks.

Marc Faber, publisher of the Gloom, Boom & Doom report, appears to be decidedly more bearish on U.S. stocks than Johnson is.

"I don't regard this as a very healthy market," Faber told CNBC. "The U.S. market is in a very dicey position where it could easily drop 10, 20 percent.

Stocks are "relatively expensive," he stated.

"I think we are bracing for a general asset deflation," Faber said. "I think the system is still very vulnerable. I'm not predicting a complete collapse because money printing can go on almost endlessly but it will have...unintended consequences."

Editor's Note: 38 Trades That Could Turn $1,000 Into $49,000

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