Stack mentioned last summer’s crisis in confidence over the raising of the debt limit. This along with a decline in consumer confidence led to a market plunge, 90% of which occurred over a three week period.
According to Stack, consumer confidence has since improved and the market has rebounded with it with a surprising amount of technical strength along with strength in the macro-economic statistics.
When asked if he believed the lows which occurred around Labor Day last year would hold, Stack said he believed they would citing the market’s typical strength going into an election. He added that bear markets and recessions in an election year are a rarity. Stack said there was only one election year since 1940 that experienced a double-digit decline, which was 2008. In contrast, Stack pointed out there have been seven presidential election years which have seen double-digit gains.
Stack said if you look beyond the macro-economic factors, based on technical factors the market is on firm footing. The breadth, or advance/decline line, hit a new high ahead of the market indexes. Stack added that if you look at leadership and his special composite, or negative leadership composite that`s used to measure downside or the absence of downside leadership, a signal was triggered last week indicating an 80 percent probability the market will be higher both six and 12 months from now.
The interview continued with Stack commenting on sectors he likes in a maturing recovery and presidential election year (energy, industrials and financials), his forecast for emerging markets and expectations for GDP growth, the prospects for the tech sector, and his view of current investor sentiment and general fear which has historically signaled a preferable time to invest.