Vincent Delisle, director of portfolio strategy at Scotia Capital, has been bullish during the remarkable rebound among stock market indexes over the past year, but has warned that the good times can't last forever. In his most recent strategy note, he has decided to adjust his recommended asset mix by moving some money out of stocks.
It's a small adjustment, but it nonetheless reflects the way in which some strategists and investors are modifying their views as the global economy shows more signs of producing a sustainable recovery. Mr. Delisle trimmed his 68 per cent exposure to stocks to 63 per cent. Those 5 percentage points are being distributed to corporate bonds (up 3 percentage points, to 16) and cash (up 2 percentage points, to 8).
"We have been 'Riding the Normalization Wave' since April, 2009, and enjoying it, but this wave will soon hit the shore," he said in a strategy note. "We are gradually taking some risk off the table."
He is by no means turning bearish, though. In fact, he raised his target on the S&P 500 slightly, to 1250 from 1225. (The index stood at about 1185 on Monday afternoon.) As well, he pointed out that the benchmark allocation to stocks is just 50 per cent. That is still well below his more bullish recommendation, which is based on his view that stocks will continue to outperform bonds.
However, he is growing concerned about so-called monetary policy shifts, as central banks begin to raise their key interest rates as the economy improves. This could be a more challenging time for stocks, which have enjoyed robust earnings growth thanks in part to ultra-low borrowing costs. As a result, gains are going to be more modest.
"From a sector perspective, we remain focused on 'coincident' sectors that react positively to robust economic data and are less burdened by interest rate hike fears," Mr. Delisle said. He prefers industrials, technology, cable/media and oil stocks. Within financial stocks, he prefers insurance companies over banks.