Pension Partners’ Gayed to Moneynews: Stock Trends Show This Isn’t a ‘Rocky Balboa Market’

Tuesday, 12 Feb 2013 11:22 AM

By Dan Weil and David Nelson

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The recent sector rotation of the stock market indicates the bull may be long in the tooth, says Michael Gayed, chief strategist for Pension Partners.

Gayed coined the term “Rocky Balboa stock market” to describe the market’s rise last year in the face of a raft of bad news.

“The problem is behaviorally the Rocky Balboa stock market looks tired and is maybe weakening,” Gayed tells Newsmax TV in an exclusive interview, referring to the behavior of sectors.

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“When you look at price behavior, the wrong sectors are starting to show strength: utilities, consumer staples, healthcare, telecomm,” he explains.

Those sectors, which perform well in a bear market and recession, are outperforming cyclical sectors that do well in times of growth, Gayed adds.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

“Now that doesn’t mean that we have to correct, but it means the environment is getting much more difficult not for Rocky to keep on punching.”

Various sectors and markets move together — what Gayed calls “inter-market trends.” So, “when you see consumer staples outperform, you’ll generally see healthcare, bonds and utilities outperform” too.

“When you see financials leading, you’ll generally see yield-curve steepening as well. So there tends to be this consistency that occurs within and across asset classes as opposed to this idea that there’s just one single thing to focus on.”

Things could turn very ugly in the market if the recent sector trends get worse, he notes, adding that nobody’s looking for a real meltdown here.

“And because nobody’s really prepared for it, that may be why it could happen. It doesn’t mean it’s guaranteed to happen, but at least the odds are higher when less people are looking for it.

So what would it take to turn the market positive again? “You need to see the right areas leading, and that’s really in the cyclical space,” Gayed maintains.

“You need to see those areas which are most sensitive to global growth get a better bid. Those are emerging markets, those are industrials, materials, energy.” A strong move up by small-cap stocks would help too, he adds.

“If you see those trends start to pick up, that becomes something that you can play for a bull move,” Gayed says. “But right now, again, I have to caution, inter-market trends are saying that is not the case.”

The Standard & Poor’s 500 Index generated a total return of 16 percent last year and has risen 6.4 percent so far in 2013.

Pension Partners likes to rotate between stocks and bonds, without parking much money in cash for extended periods.

For example, when stocks tumble, it’s usually in a deflationary environment, Gayed explains.

“Deflationary scares tend to be very good momentum-wise for bonds. So it’s better, in our judgment, to rotate into bonds during those risk-off periods rather than cash, because at least there’s the potential to gain from that environment.”

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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