The US stock market will move sideways before it moves up, says PSigma American Growth manager James ...
The US stock market will move sideways before it moves up, says PSigma American Growth manager James Abate.
Abate says he maintains the view the S&P 500 will be up in excess of 20% for the year but believes the move from the lows of March will not be in a smooth fashion but step-like in their convexity and volatile.
"Package delivery company UPS, held in the fund, expressed a view that the US economy was bottoming but not yet improving as excess capacity in most industries remained," says Abate.
"In other words, the quickest and most efficacious cost-cutting and restructuring that we have witnessed in our careers has allowed companies to stay ahead of the curve in terms of expectations.
"However, surprises moving forward will be tough to sustain on cost-cutting measures alone - revenue stabilisation and, even improvement is needed."
Abate says the excess capacity issue raised by UPS is key and supports his view the second leg of the rally for stocks occurs when pricing power returns to non-financial companies.
In light of this view, Abate continues to favour blue-chip companies which are best-in-class, or cyclical companies set to benefit from a selective pick up in consumer demand.
