Piper Jaffray’s "Bullseye" Craig Johnson tells Financial Sense Newshour that his models are still forecasting a double-digit gain in stocks this year (specifically targeting 2350 on the S&P 500), but a quick rise in interest rates could spook the market between now and then.
Important note: Since we started following Craig’s work and regularly interviewing him on the show, his views and forecasts for the market have so far been extremely accurate. For example, in November of 2012, while stocks were mired in a downtrend and fears were rampant that the bull market had come to end, Craig, the Senior Technical Research Analyst at Piper Jaffray, told listeners that stocks would climb a wall of worry and rally nearly 50% higher in the next 24 months (see here), reaching a target of 2000 on the S&P 500 (it was trading around 1350 at the time). The market bottomed that very day and, true to his words, climbed relentlessly higher over the next 21 months before reaching his target in August of 2014.
Since that time, Craig’s technical and fundamental research on the market and year-end targets for the past 3 years have been remarkably accurate, even within range of just a few points numerous months, if not years, in advance. We highly recommend our readers to consider his comments below or to listen to the entire interview, which aired this Saturday here and on iTunes here (starts at 17:05).
Market Structurally Set Up to Move Higher
"There's lots of discussion in the popular press that we could have close to a trillion dollars in share buybacks in the US and if that is indeed the case we are shrinking the amount of stock out there. Couple that with the analysis that we've done over the past several months that there are 25% fewer stocks in the market today than there was in 2000; put all that together and you structurally set this market up to move higher with a fewer number of sares and a lot of shares getting repurchased. I think this market works and it works well and we're still looking for 2350 on the S&P 500 year-end and many of our models are pointing to that number and I think it's a good solid guess where this market ends this year."
Oil and Energy in "Glorious Relief Rally"
"I suspect that you're going to see the dollar show some good strength as we continue to show signs that the economy is picking up here in the states and I think that will ultimately push oil prices lower. The number one thing I heard while in Europe was 'Is the bottom in for the energy sector?' And you and I have done this business long enough to know that bottoms are not made when people are asking questions—they're made in total despair. And right now, oil—the energy sector—is nothing more than a glorious relief rally and I'm watching very carefully the momentum indicators on this to see when it finally does roll over. And I think most of the institutions feel the same way I do."
Interest Rates Have Bottomed
"I'm watching 2.24 very carefully on the US 10-year bond yield and if it closes above that level to me that is going to suggest that the intermediate-term downtrend is probably changing to be more positive. I'm still looking for 2.50-2.75 on the 10-year bond yield by year-end and I think that's going to be a goal that we can achieve. I want to see us there in a slow drift up, not a quick fashion, because if rates move up too quickly that can spook equity markets. So that's going to be an interesting balance point to watch but I ultimately do think that rates did bottom in about June-July of 2012 and I expect rates to work their way higher."
Underweight Utilities; Rotate Into Large Cap Banks
"We have taken the utility sector to an underweight and we are looking at a bunch of the REITs and the more sensitive dividend-paying stocks and it's probably time to take some profits in some of those names and come back into other sectors. One sector that I think people should rotate into is big large cap banks, and even the regional banks, because if the yield curve does steepen as rates go up there's going to be a nice net margin pickup there and these banks will probably do quite well."
Listen to the rest of this interview with esteemed market analyst Craig Johnson on the Newshour page here or on iTunes here (Craig's portion starts at 17:05). Subscribe to our weekly premium podcast by clicking here.
