Wilmington Trust says it’s time to buy equities

Although the market is more volatile than ever, investors should overcome any concerns about its gyrations and think about buying stocks, say strategists with Wilmington Trust Corp. in Delaware.

That is because there are signs of recovery in the market, particularly now that the war in Iraq is over, says Robert Christian, Wilmington’s chief investment officer. The war had dragged on the market for months, he notes.

Despite a disheartening rise in unemployment to almost 6%, there are encouraging signs, Mr. Christian notes. Year-to-date as of midweek, the Standard & Poor’s 500 stock index was up nearly 7%.

Oil prices have dropped to about $28 a barrel after reaching nearly $40 at the start of the war in March, says Mr. Christian.

Nonetheless, the signs are definitely mixed. “It’s still an open question whether the economy is in a recession or in recovery,” says Dorsey Farr, senior economist and market strategist with Wilmington Trust.

On the plus side, the growth in consumer spending over the past year and a half has averaged 3%.

And corporations may be poised to increase investment spending in technology equipment and software after a virtual moratorium since the dot-com bubble burst, says Mr. Farr.

Mr. Christian and Mr. Farr made their comments during an online conference last Wednesday called “War and Peace – Protecting and Growing Your Assets During Turbulent Times.”

gauging barometers

Mr. Farr points to the current state of Standard & Poor’s 500 stock index as a barometer for a market recovery. Earnings for the group are close to $55 a share, compared with $48 in 1997. And the index is also relatively cheaper than it was in 1997, with a price-earnings ratio of 16, compared with a p/e of 18 six years ago

“It’s an attractive time to be a purchaser of equities,” Mr. Farr says.

However, it’s important to keep in mind that the economy has lost 2 million jobs since March 2001, Mr. Farr says. Half a million jobs have been lost this year alone. “We’re in a jobless recovery.”

After three consecutive years of a down market, investors are spooked. Close to $6.2 trillion in money market accounts or cash equivalents is sitting on the sidelines, compared with $3.6 trillion in 1998.

In addition, corporate profits have dropped since 2000.

And “volatility is at an all-time high” in the stock market and well above its average since World War II, Mr. Christian notes.

There are two reasons for this, he says: the proliferation of cheap trading, and the drop in the length of time investors have been holding on to their stock and equity mutual funds over the past decade. Holding periods now average 10 months, compared with three years previously.

To temper the market’s volatility on its clients’ holdings, Wilmington Trust is advising investors to broaden their holdings, says Robert Reiser, chief investment strategist and chairman of the investment strategy team.

That means a shift away from a large equity allocation primarily in large-cap stocks, even for the most aggressive investors, Mr. Reiser says.

Hedge funds will also have a larger part in clients’ portfolios going forward, he adds.