John Stoltzfus is managing director and chief market strategist at Oppenheimer & Co. Prior to joining the firm, he was senior market strategist at Ticonderoga Securities, where he provided all macro, market outlook and strategy ideas to the firm and its clients. ETF.com recently sat down with Stoltzfus to discuss his outlook for U.S. stocks, which is one of the most bullish on Wall Street.
ETF.com: What underpins your bullish outlook on the U.S. stock market?
John Stoltzfus: The fundamentals are improving. Despite all the challenges that exist in the system, the economic expansion has shown sustainability. In the second quarter, U.S. GDP grew 3.9 percent. It's likely to come in around 2 percent for the third quarter.
The current earnings season is not a barnburner by any means, but it is one where we're seeing a good number of upside surprises by large-cap names, some of whom even have global exposure and have been able to improve in spite of the strong dollar.
In addition to that, the Fed remains extremely accommodative. Interest rates are next to zero. The Fed will probably not raise them this year, though there's a good chance that it will raise them the first quarter of next year.
We believe the market will anticipate a better 2016 than 2015 was for the economy and earnings. Our year-end target for the S&P 500 is 2,311, which would imply a 13 percent upside from the levels we are at today [Oct. 22].
ETF.com: That's quite a big upside move in a short period of time. Most analysts have cut back their targets, but you're sticking with it?
Stoltzfus: Yes. We're one of two strategists left with a 2,300 target. It looks like a stretch now, but we put that target out last November when we were looking for an overall gain of about 12 percent for 2015 based on an improving economy.
The Chinese devaluation in August was problematic, along with concerns about global growth. Then we also had uncertainty about what the Fed will do with interest rates. Together, these caused this correction that we had over the summer. That said, we think the market will reward investors who have patience.
ETF.com: In the bigger picture, where do you see the bull market? We're six years in. Can it last much longer?
Stoltzfus: The thing with a bull market is it really doesn't carry a calendar with it, or an expiry date. What eventually happens with any bull market is that interest rates will rise high enough so that bonds will become competitive with stocks; or there will be some kind of difficulty with earnings in a particular sector that will cause concern; or the market will run high enough so that valuations get out of line and there will be a significant correction that changes sentiment on equities.
Right now, we don't see any of those. This bull market has room to run—probably not at the rate that we saw in 2013, when the market had a year where it was up about 29 percent in terms of the S&P 500, but one in which good alpha selection over beta will reward investors.
Additionally, the cyclicals will be the better place to be over defensives. We also expect the bull market will move to a global picture.
ETF.com: Which regions do you like internationally?
Stoltzfus: We continue to like the European Monetary Union. We would be looking for ETFs that offer exposure in that area. We would also consider a mix of hedged and unhedged ETFs because we think the dollar has already experienced most of its strength.
If you look at the near-term performance between the WisdomTree Europe Hedged Equity ETF (HEDJ | B-50) and the ALPS Stoxx Europe 600 (STXX | F-87)―which is completely unhedged―they're pretty close.
Related to the emerging markets, we believe it's time to have some exposure―not necessarily an overweight position―but some exposure. Those markets have been out of favor for so long that there is likely value there.
ETF.com: Do you have any opinion on small-cap versus large-cap in the U.S.?
Stoltzfus: We are market-cap-agnostic. In an ETF portfolio, we would equal-weight the SPDR S&P 500 (SPY | A-99), the SPDR S&P MidCap 400 (MDY | A-83) and the iShares Russell 2000 (IWM | A-92). We can't help but think that the smaller caps have been dealt with too harshly, and there might be opportunity to pick them up now.
Contact Sumit Roy at [email protected].