Troubling aspects of the market have persuaded one of Wall Street’s most outspoken money managers to go defensive.
BMO Private Bank chief investment officer Jack Ablin is now refraining from taking risks in this volatile environment. He said this as stocks completed a four-week win streak last week, pulling the Dow Jones Industrial Average back above 17,000.
“I think we have come pretty far pretty quickly — especially since the underpinnings of value and fundamentals haven’t really changed that much,” Ablin said recently on CNBC’s “Futures Now.”
Ablin, who manages about $68 billion in assets for individuals and families, said two things “disturb” him right now: The 200-day moving average trending lower, and credit conditions remaining tight.
“We’re not seeing much easing going on in credit spreads,” he said, referring to the difference between the yields on riskier debt and on safer fixed income products.
“While overall yields that corporations pay may be at or just slightly higher than they were say six months ago, spreads… remain pretty aggressive, suggesting risk aversion,” he added.
Meanwhile, while admitting that he is “not really a technician,” Ablin says that he keeps a close eye one market momentum. And even as the S&P 500 Index has risen over the past week, its widely watched 200-day moving average (which simply averages the last 200 closing prices) is still falling.
“That’s a concern,” as it suggests that “we’re in a breakdown condition,” he said.
In this environment, Ablin is particularly interest in high-dividend-paying stocks and high-yielding bonds.
These so-called junk bonds are “certainly attractive,” Ablin said. “Small-caps have gotten completely hammered over the last year or so. And, mid-caps are starting to look interesting on a valuation basis.
Ablin, who initially got bullish in June 2009 following the financial crisis, turned bearish last August in anticipation of the first interest rate hike in nearly a decade. While that hike didn’t actually come to pass until December, the S&P is nonetheless considerably below its mid-August highs.