Kass: Leave the Bonds; Take the Equities

This blog post originally appeared on RealMoney Silver on May 18 at 7:24 a.m. EDT.

"Leave the gun; take the cannoli."

-- Clemenza (Richard Castellano), The Godfather

As we approach the summer, a potential setup to the upside exists after the current correction runs its course.

From my perch, the proximate cause will likely be based more on supply and demand rather than a function of a variant and more positive view of emerging domestic economic growth or an improving corporate profit picture. I see the onset of a potentially meaningful asset reallocation trade (by our country's largest pension plans) out of fixed income and into equities.

Over the past 18 months, many large pension plans have moved a disproportionate amount of exposure into fixed income, owing to the outperformance vis-à-vis stocks. With bonds likely to remain under continued pressure -- the yield on the 10-year U.S. note is now comfortably above 3% and nearly 100 basis higher over the past five months -- and stocks having seemingly made an important (and perhaps) generational bottom, pension plans could become the catalyst marginal buyer that would spur stocks toward my longstanding (well, at least for two months!) 1,050 S&P 500 target by late summer.

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

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Know what you own: Some of the most active stocks during Monday's midday trading include Bank of America (BAC Quote), Citigroup (C Quote) Direxion Daily Financial Bear 3X Shares (FAZ Quote), SPDRs (SPY Quote), Direxion Daily Financial Bull 3X Shares (FAS Quote), Ford (F Quote) and Financial Select Sector SPDR (XLF Quote).