Schwab Strategists: Rally Will Hold

Two top Charles Schwab strategists — Chief Investment Officer Jeff Mortimer and Portfolio Manager Paul Alan Davis — said today that the current rally is for real, and that long-term investors should be putting money into equities.

Mortimer tells Yahoo! TechTicker that the March 9 low had fundamentals similar to those of the 1974 and 1982 bear market lows, and says he thinks the bulls will continue to run.

For those who didn’t catch the March 9 low and remain underweight on stocks, Mortimer says, it’s thus still a good time to put money into stocks. The market remains undervalued, he says, and those who missed the March 9 low should dollar-cost average back into the market over the next 12 to 18 months, taking advantage of weakness and opportunities.

Mortimer says that after lows like the one we saw on March 9, many investors wait for another new low before jumping back into the market. But, he says, “If you wait for that low to come back in, you find yourself never getting back in.” Many investors who wait will pay a high price in opportunity costs, he says. “To me this is a game of probabilities, not absolutes,” Mortimer said. “You have to play for long term, and you either have to say am I buying good value here or not, and if I am it doesn’t matter if I catch the low. It’s irrelevant.”

“In order to be an equity investor,” Mortimer adds, “you must invest for the longer term, you must invest when value is offered, and you must be willing to step up sometimes in periods of uncertainty, which I think we’re in now.”

As for those who say that the current bear hasn’t reached the valuation lows of the 1973-74 or 1980-82 bears, Mortimer says they’re not taking inflation into account, something Jeremy Grantham also recently suggested.

Davis, meanwhile, tells TechTicker that the recent shift to riskier areas of the market — like small- and micro-cap, technology, financial, and consumer discretionary stocks — should continue. He says Schwab is interested in financials like JPMorgan and cyclicals like MeadWestvaco. He is also seeing good buys in companies with “safe” yields, including Microsoft and Baxter International.

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