NEW YORK (TheStreet) - Markets are unlikely to gain strong direction until well into spring, strategists said, warning investors to brace for further daily "churn" as geopolitical events dictate sentiment.
Gains in the S&P 500 have been broadly flat this year -- the index is up just more than 1% after shedding 5.5% in late January and hitting a new record of 1878.04 early this month. Markets have fluctuated between gains and losses on a daily basis as concern around the debt position of many emerging markets -- namely China -- rattles sentiment. Stocks were lower again Thursday, after Goldman Sachs downgraded its first-quarter GDP estimate for the U.S. economy to 1.5%.
Dan Veru, Palisade Capital Management's chief investment officer, said investors should prepare for another three to six months of churn in the markets. But he said individual stocks were performing better than indices suggested, noting that the outperformance of small companies was significant. The small-cap Russell 2000 index has returned 2.57% so far this year, with fund managers pointing to its lower exposure to emerging markets and higher M&A activity as drivers.
"Small-cap stocks are an indicator of domestic demand and a good indicator that the U.S. economy remains in an uptrend," Veru said in a phone interview. He suggested China's engineered slowdown to a more sustainable growth rate is not a major concern. A selloff in industrial metals this week was triggered by poor Chinese export data, raising fears around the outlook for the world's second-largest economy.
But Veru questioned whether any indicators showed a slowdown in Chinese consumer spending. "The opportunity for the U.S. is to continue to do business with the emerging markets retail class," he said. "I firmly believe the super-cycle for commodities is over, but that's not a bad thing. Lower copper prices will make it easier for manufacturers and means better margins for companies."