THE BLOG
12/13/2010 03:01 pm ET Updated May 25, 2011

Let's Get Ready To Rumble

That colorful catchphrase is what sports announcer Michael Buffer, bellows before one big boxing match after another.

That's essentially what I also hear from Wall Street's top pinup gal of the 1980s and early 1990s, veteran stock market guru Elaine Garzarelli, when it comes to her assessment of the 2011 equities market.

Back in the 1980s and 1990s, she dazzled the Street with a series of on-the-money 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 20 years later, with considerably less fanfare, Go-Go is once again sizzling. Garzarelli, who runs Garzarelli Capital, a firm that doles out advice to institutional investors and manages money via her Sector Analysis Fund, is up around 27.5% in roughly the past 12 months, about 7% better than the general market. She has basically been bullish through most of this year, in the process catching the recent 14% rally.

As we all know, there's a lot for investors to worry about, especially Europe's spreading sovereign debt crisis, a housing market that's still beset by loads of termites, a sluggish economy that has been painfully slow in materially improving the jobs picture and a feuding Congress and White House that could turn 2011 into a legislative fiasco.

But Garzarelli, who tracks a series of market indicators, 71% of which are throwing off a positive market reading, insists it's the wrong time for investors to be quaking in their boots. Her overall view, as she explains it, is that it's the right time to stock up on stocks because she expects the new year to produce about 20% gain in equity prices and an extension of a bull market that should last for years.

As of now, based on her price/earnings models, she figures fair value for the S&P 500 is around 1350, about 7% below its current level.

Garzarelli notes that one of her indicators, a contrary indicator that focuses on sentiment, is flashing a distress signal. In brief, the number of bullish investment advisers is high at 56.2% (a development that often precedes a market selloff). Garzarelli believes any such selloff would be limited to say 4% to 7%, an event she thinks would provide investors with an opportunity to add to their stock positions.

Elaborating on her sunny market outlook, she notes the slower the economic growth, the longer lasting the recovery and a lower level of interest rates. She also rattles off a number of pluses in documenting her bullish case, among them:

  • Perkier economic activity, with likely GDP growth of 3% next year, up from about 2.8% this year.
  • A strong correlation between the performance of the stock market and holiday sales, which have been strong.
  • The latest batch of economic indicators suggests a faster pace of private-sector recovery and better employment.
  • Momentum in industrial production, which should be on an uptrend at 2.9% next year, 4.5% in 2012 and 4.2% in 2013.
  • The strong benefits of quantitative easing. In Japan, for example, following substantial QEs in March of 2003 and October of 2004, the Japanese stock market rose 47% and 83%, respectively, from peak to trough.
  • Both consumer confidence and consumer sentiment hit five-month highs in November.
  • Businesses, flush with cash, are addressing replacement needs neglected during the recession.
  • Thee is little risk of inflation becoming too high in the foreseeable future, given high unemployment and low capacity utilization.

Her favorite market sectors, primarily recommended through exchange traded funds, are consumer discretionary (XLY) industrials (XLI), financials (XLF), materials (XLB) and the tech sectors (XLK). She also likes housing (XHB) and gold (GLD).

In high yields, she favors such ETFs as Pimco Income Opportunity (PKO), 8% yield; Annaly Capital Management (NLY), 14.8% yield; SPDR Barclays High Yield Bond (JNK), 9.4% yield; iShares High Yield Corporate Bond Fund (HYG), 8.3% yield, and the Wells Fargo Advantage Income Opportunities Fund (EAD), 10.4% yield.

So there you have it, a pinup gal from yesteryear who thinks you ought to pin your hopes on stocks and junk bonds in the year ahead. Interestingly, half her fund is in two and three-year junk bonds, including General Motors and Ford with yields in the 7% to 8% range.

Garzarelli's basic bottom line: It's the wrong time to be a Casper Milquetoast!

What do you think? E-mail me at Dandordan@aol.com