"We continue to recommend an allocation of 70 percent to equities in a balanced portfolio. That is 10 percentage points higher than the benchmark weight. We are maintaining our overweight in equities and zero cash position because equity valuations in absolute terms, not just relative to bonds, don't yet appear to be stretched, thanks to solid earnings growth. We continue to favor Europe, the emerging markets and Japan. . . . According to our European strategy team's estimates, Europe's earnings growth could reach 25 percent this year."

Exchange Traded Funds Strategies

Morgan Stanley

New York

"Bonds are beaten and bedraggled, with almost no one believing bond prices can go up. That means they ought to do just that in order to surprise the majority. The smart money is already long bonds. Gold got overdone in its initial sell-off and has a bounce to do before even more selling in late May and all of June."

Tom McClellan

The McClellan Market Report

www.mcoscillator.com

"The odds certainly favor a continuation of the bull market after the first hike in the discount rate, but not always. Who can forget the 1987 meltdown? The Fed raised the discount rate on Sept. 4 of that year, and the market crashed on Oct. 19, losing more than 20 percent in a single session. But, on balance, history is very much on the side of the bulls. As Michael Murphy, editor of Technology Investors, recently pointed out: 'Since 1917, the Fed has raised interest rates 22 times after a series of declines, and, in 16 of those, went on to raise a second time. After the first increase, on average, stocks were higher one, three, six, nine and 12 months later. After the second increase, stocks were slightly down one and three months later, but higher six, nine and 12 months later.' "

Dan Sullivan

The Chartist Mutual Fund Letter

Seal Beach, Calif.