From the print edition of TWSJ 3/15.
"Harris Private Bank is in the middle of a debate over whether to boost its small-stock exposure. The bank has decided to cut investments in Europe, Japan, and Australia and increase U.S. holdings - but which U.S. holdings?
Harris's small-stock analyst is leery of the group, feeling it has become expensive, Harris's Mr. Albin says. The Russell currently trades around 52 times its companies' profits for the past year, making it more than twice as expensive as the stocks in the S&P 500, according to Thomson Reuters.
But analysts are forecasting that small-company earnings could double this year, compared with growth of 10% to 12% at larger companies, Mr. Albin says. He is tempted by the group's prospects and its stock momentum.
The problem: There are enormous expectations built in, so room for disappointment is enormous. We may end up buying a little of both small and large stocks. Some analysts warn that the trend toward risky stocks may be nearing its apex.
We are taking some money out of the high fliers and reallocating a bit, thinking we might be near the high end of the market's 2010 gains, says Jeffrey Klleintop, chief market strategist at brokerage firm LPL Financial in Boston, who has been bullish.
He worries that uneven economic performance could make stocks volatile and limit gains, especially if world-wide demand for Chinese goods proves uneven. He isn't recommending that clients cut back on small stocks yet, but he thinks that time is nearing.
Investors are embracing risk, Kleintop says. But as the headwinds for growth reemerge later this year, I think we will see small stocks give back most of their gains relative to large stocks."
