The market is still close to its all-time high, with the S&P 500 (^GSPC) still far above its pre-pandemic levels — even with a raging pandemic and stark unemployment claims.
“The market is definitely ahead of itself,” Capital Wealth Planning chief investment officer Jeff Saut said on Yahoo Finance Live. “I think it could use a pause here.”
But still, Saut echoed the advice that Citi’s (C) private bank is telling clients: think long term and get invested, otherwise you’ll miss an important train.
“Secular bull markets tend to last 18 to 20 years,” Saut said. “I think people are way too cautious here. I think people are underinvested.”
Saut said there’s around $5 trillion on the sidelines as investors who perhaps adopted defensive positioning in the earlier days of the pandemic wait to get into the market either for a better economy or a cheaper price given the all-time high.
This is precisely what Citi and other financial advisers say not to do. Investing at an all-time high may be a bad thing if you need the money soon, but even investing in the S&P 500 at the all-time high right before the coronavirus would have net more than 8% — a nice annual gain.
This is why Saut says to take a long view and think about where the market’s going way down the line, and that today’s all-time highs that may seem too-good-to-be-true might actually represent big discounts on prices well into the future. And there’s no guarantee that cheaper prices to get into the market will come.
In the same conversation, CFRA Research's Sam Stovall brought up the fact that many investors were interested in lower-quality stocks as a good sign.
"That's a sign of investor confidence that the worst of the recession is behind us and those companies that were priced to go out of business were not,” he said. In other words, just because this is an all-time high doesn’t mean it’s the “top.”
“In the six post-bear market times that have occurred, the S&P gained an average of 10% in the subsequent year and was up six of six times,” said Stovall, adding that this finding was based on a small data set, but is still “encouraging.”
While Citi advocates “getting fully invested,” Saut says he’s long-term bullish on all the sectors in the S&P 500 index, but that he keeps 10% to 20% in cash for good ideas should they come up.
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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
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