Steve Leuthold, whose Leuthold Core Investment Fund has beaten 85 percent of its competitors in the past five years, said he boosted his stock holdings and may invest as much as 70 percent in equities because the market is poised to reach a new 2010 high.
The investor, who bet on stocks before the Standard & Poor’s 500 Index started the biggest rally since the Great Depression in March 2009, said he lifted the net equity position of the $1.32 billion Leuthold Core Investment Fund and the $1.25 billion Leuthold Asset Allocation Fund to 60 percent from 46 percent in July. The Leuthold Global Fund, which has $294.5 million in assets, has between 62 percent and 63 percent in equities, he said.
While the benchmark measure for U.S. equities posted the biggest September rally since 1939, it has failed to exceed the 19-month high reached in April amid concern that the European debt crisis will slow global economic growth and after analysts cut 2011 profit estimates for the first time in a year. Leuthold said he sees signs stocks will keep rising.
“The market looks pretty healthy,” Minneapolis-based Leuthold, 72, said in a telephone interview yesterday. “It’s becoming clear that the economy is in a recovery mode. We look at the valuations and the technical side. I wouldn’t be surprised to see the market move to new highs maybe as soon as the end of November.”
The S&P 500 climbed to 1,160.75 on Oct. 5, the highest level since May, after American service industries expanded more than forecast and speculation grew that the Federal Reserve will join Japan’s efforts to stoke economic growth. The stock index has traded between 1,217.28 on April 23 and 1,022.58 on July 2 this year. It is valued at 12.1 times projected earnings for the next 12 months, compared with a 16.5 average since 1954 using reported results, according to data compiled by Bloomberg.
Leuthold said he recently bought stocks of health-care management companies and “we’ve become more enamored with” industrial companies. The investor said he doesn’t like financial shares.
Banks “are going to have continued margin pressures,” Leuthold said. “We really don’t have much in terms of financials. There hasn’t been a great deal of loan demand here and the spreads are not terribly attractive for some banks.”
Commercial and industrial lending fell to $1.24 trillion in the week ended Sept. 8 from $1.4 trillion a year earlier, Fed data show. Banks’ holdings of government debt reached a record $1.6 trillion in the week ended Sept. 1, 15 percent more than a year earlier, according to Fed data compiled by Bloomberg going back to 1973.
Leuthold’s returns have lagged behind his peers during the past year, according to data compiled by Bloomberg. The Core fund has topped 5 percent of competitors, while the Allocation fund is in the 33th percentile. The Global fund is beating 80 percent.
The investor says he’s pessimistic about the second half of 2011 and believes the S&P 500 may drop as low as 850 or 900. The index rose 0.6 percent to 1,165.15 at 4 p.m. in New York after a worse-than-estimated report on American jobs bolstered speculation that the Fed will enact economic stimulus measures.
“I’m concerned as to what might happen or what might not happen next year in addressing the big gorilla in the room, which is the huge budget deficit,” he said. “You’re going to see trouble by the last half. It’s probably going to be related to increasing concerns about the dollar, increasing concerns about monetary debasement.”
Bets the Fed will weaken the currency by stepping up purchases of government debt has driven the U.S. dollar to the lowest level since 1995 against the yen. The Dollar Index, which tracks the greenback against six major currencies, has dropped 4.2 percent since Aug. 10, when the Fed said after its policy meeting that it would keep its bond holdings level by resuming the purchase of U.S. debt to support a recovery it described as “more modest” than earlier anticipated.
“I do hope that they pull in their horns and recognize the modest improvement that is taking place in the economy and don’t do it,” Leuthold said. “This could be devastating for the U.S. currency. What it really does is destroy wealth.”