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Dan Dorfman

Dan Dorfman

Posted: April 26, 2010 03:21 PM

It's Still a Go-Go Market!

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In the 1980s and early 1990s, stock market guru Elaine Garzarelli was Wall Street's top pinup gal, dazzling the Street with a honey of a series of on-the-money equities forecasts. Investors hung on her every word, and her proclamations often moved the market. She was predominantly bullish during this period, earning her the nickname Go-Go Garz.

Now, some 25 years later, with considerably less fanfare, Go-Go is again sizzling. Garzarelli, who runs Garzarelli Capital, a firm that doles out market advice to more than 100 institutional clients with assets in excess of a $1 trillion, has basically been bullish through most of the past 12 months, a period in which stock prices ballooned.

As we all know, there's still a lot to worry about as far as the stock market goes, with the prospects uppermost in the minds of many pros of a spreading sovereign debt crisis and any new disappointment on what's widely perceived as an improving jobs picture. But Garzarelli, who tracks 14 market indicators, which are essentially throwing off a positive market reading, insists it's the wrong time for investors to be quaking in their boots. Her overall view, as exemplified in a commentary she just fired off to clients: it's still a go-go market.

One of her indicators, though, a contrary indicator that focuses on sentiment, is flashing a distress signal. In brief, the number of bullish investment advisers has been rising steadily, a development that often precedes a market sell-off). Accordingly, Garzarelli says she wouldn't be surprised to see a consolidation or a normal 4% to 7% correction at any point. But such a correction, she observes, would be an opportunity for investors to add to their stock positions.

Elaborating on her sunny market outlook, Garzarelli points to strong earnings momentum, what with Yahoo's earnings more than doubling, Apple's profits surging 90% in the first quarter and Goldman Sachs reporting a 91% jump in first quarter net. Further, first quarter earnings have posted the most estimate beats in 17 years. Second quarter results, she believes, should be even stronger.

For all of 2010, Garzarelli expects a 28% increase in S&P 500 operating earnings, spurred by easy comparisons, company cost-cutting, recovering economies around the globe, low interest rates and low unit labor costs.

While fears of rising interest rates are mounting on Wall Street, Garzarelli pooh-poohs such concerns. She reckons that financial nervousness and lofty unemployment will likely keep the Federal Funds rate--now in a range of zero to 0.25%--stable at least till the summer.

The government's stimulus package phases out in October, but Garzarelli notes there is already talk of extending it into fiscal 2011.

Her GDP outlook calls for 4% growth this year, which she thinks should enable the S&P 500 to realize its fair value of 1315 before year end. Such a showing would represent about an 8% gain from the index's current level of around 1217.

Her favorite investment sectors, primarily recommended through exchange traded funds, are industrials (XLI), financials (XLF) and semiconductors (IGW).

In high yields, she favors Pimco Income Opportunity (PKO), 8.7% yield; Annaly Capital Management (NLY), 15% yield; SPDR Barclays High Yield Fund (JNK), 11.8% yield; aShares High Yield Corporate Bond Fund (HYG), 2C 9.3% yield; and Cellcom Israel Ltd. (CIL), 8.2% yield.

Garzarelli's basic bottom line: Stock up on stocks; the trend remains up.