Analysis: Do not panic: The rally in risk assets is for real

Fri Mar 23, 2012 1:04pm EDT
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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - If you're waiting for the next meltdown in U.S. stocks or in commodities, you may want to get over it.

After several false dawns following the global financial crisis, more investors are starting to believe the current rally in stocks, commodities and emerging markets could be a long-lasting one.

The S&P 500 .SPX closed above 1,400 points last week for the first time since the 2008 financial crisis. Investors piled into U.S. equity funds, with the biggest weekly inflows since mid-September.

"Is this risk rally for real? I think the answer to that question is yes, but it's not a straight line up," said Art Steinmetz, chief investment officer at Oppenheimer Funds in New York, managing more than $177 billion in assets.

Oppenheimer is currently betting on stocks tied to upswings in the economy, and is also overweight in riskier bond classes, he said.

Since its recent bottom in early October, the S&P index has jumped 30 percent. But for the first time since 2007, investors are not using the gains as an opportunity to take profits and run away. Instead, the rally has been slow and steady, and investors see the sustained improvement in the U.S. economy as a sign that demand has returned and that risky assets can support higher valuations.

"The prospects for future returns in equities relative to bonds are as good as they have been in a generation," Goldman Sachs in a note Wednesday said.

Dean Junkans, chief investment officer at Wells Fargo Advisors and Wells Fargo Private Bank, said individual investors have started wading back into higher-risk, higher-yield assets, including high-yield and emerging market funds.   Continued...

Traders work on the floor of the New York Stock Exchange, March 22, 2012. REUTERS/Brendan McDermid