{"id":32278,"date":"2012-09-12T09:27:46","date_gmt":"2012-09-12T13:27:46","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/09\/what-does-the-smart-money-see-for-the-4th-quarter\/"},"modified":"2012-09-12T09:27:46","modified_gmt":"2012-09-12T13:27:46","slug":"what-does-the-smart-money-see-for-the-4th-quarter","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/09\/12\/what-does-the-smart-money-see-for-the-4th-quarter\/","title":{"rendered":"What Does the Smart Money See for the 4th Quarter?"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

There is an art to following the recommendations of Wall Street strategists.\u00a0 Taken individually, the average strategist tends to be pretty sharp.\u00a0 They do their homework, they have well-funded research teams, and it can be worthwhile to hear what they have to say, even if their advice tends to be very conventional.<\/p>\n

But whatever value there is in listening to an individual strategist, you can get an entirely different layer of insight from seeing what they have to say as a group.<\/p>\n

This is not to say you should blindly follow the advice of Wall Street strategist, and as often as not you can even use them as a contrarian indicator and bet against them.<\/p>\n

Like all investors, top strategists can be prone to certain psychological biases.\u00a0\u00a0\u00a0 They tend to \u201canchor and adjust\u201d their existing forecasts, which means they fail to fully react to new information.\u00a0 They fall victim to a \u201crecency bias\u201d in that they tend to place undue importance on recent events while ignoring the long-term historical record.\u00a0 They are prone to \u201cconfirmation bias,\u201d meaning they look for data that confirms their current view rather than keeping an open mind and letting the data guide their opinions.<\/p>\n

And perhaps most of all, they can be prone to herding behavior.\u00a0 We humans crave the approval of others, and we often think and act as a group rather than as independent-thinking individuals.\u00a0 It\u2019s during times like these that the smart money doesn\u2019t look all that smart.<\/p>\n

With all of that as a introduction, let\u2019s see what the smart money expects for the remainder of 2012.\u00a0 In the September 3 issue<\/a>, Barron\u2019s interviewed 10 prominent Wall Street strategists to get their predictions on GDP growth, the 10-year Treasury yield, and the level of the S&P 500.\u00a0 Barron\u2019s also asked each strategist to give their favorite sectors and the sectors they\u2019d recommend avoiding.<\/p>\n

The opinions were in a fairly tight band.\u00a0 7 of 10 analysts were bullish, though their forecasts hardly made them wide-eyed optimists.\u00a0 Year-end estimates for the S&P 500 ranged from 1167 on the low end\u2014a\u00a0 nearly 20% decline from current levels\u2014to 1480, which is a just a modest 3% above current prices.\u00a0 (The poll was taken before the large run-up of the past few weeks, but the forecasted gains would still seem pretty subdued.)<\/p>\n

Forecasts for the 10-year Treasury yield ranged from 1.5% to 2.4% with an even 2.0 percent being the most common answer.<\/p>\n

Given that the 10-year yields 1.57% at time of writing, the strategists would seem to be putting out mixed signals.\u00a0 They see an economy strong enough to send Treasury yields up by nearly a quarter, yet they see only modest stock market gains.\u00a0 It\u2019s hard to see both of these forecast being correct.<\/p>\n

The sector choices tell an interesting story as well.\u00a0 Fully half of the strategists recommended technology, which is high but not out of line for this group, while one recommended avoiding it (and the one strategist that recommended avoiding it was only bearish on software; he was actually bullish on hardware).\u00a0 Technology has been highly recommended for a couple years now, and I wouldn\u2019t see this as a sign of rampant herding.<\/p>\n

Healthcare and energy were also popular choices, getting four votes each.<\/p>\n

On the bearish side, no one sector was singled out by the group.\u00a0 Materials received the highest number of \u201cnays\u201d at four, but I would hardly consider that a consensus.\u00a0 Bearish sentiment was pretty evenly distributed across sectors.<\/p>\n

Overall, there are no obvious conclusions to be gleaned from the smart money this go around.\u00a0 They seem as muddled and confused as the rest of the investing public.\u00a0 If anything, a contrarian might take a look at their lack of strong conviction and see it as a bullish signal to tack on a little risk for the last quarter.<\/p>\n

This article first appeared on MarketWatch<\/a>.<\/em><\/p>\n

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