World Stock Recovery in Offing: ``We will get the economic recovery at the end of the year. We are beginning to get the impact of the easings hitting the economy after a six month lag and that should continue,'' said Bill O'Neill, global strategist at JP Morgan Fleming Investment Management in London.
``The stock market should begin to anticipate that and by the end of the year or late January we will be back to previous highs of March 2000 in the S&P 500 index.''
That would sure be nice!
dailynews.yahoo.com
Saturday July 7 4:09 PM ET
World Stock Recovery in Offing
By James Saft
LONDON (Reuters) - An improving U.S. economy will win the battle over a dismal flow of corporate earnings news but for global stock market investors the spoils of war will be modest.
Stock markets have been bloodied this week by a relentless stream of bad news, as companies from British telco equipment company Marconi to U.S. retailer Federated Department Stores and data storage giant EMC Corp owned up to damage caused by a cooling economy.
But in contrast, data out of the U.S., the world's engine of economic growth, shows U.S. manufacturing stabilizing and the rest of the economy beginning to respond to a sustained rate cutting campaign by the Federal Reserve (news - web sites).
``We will get the economic recovery at the end of the year. We are beginning to get the impact of the easings hitting the economy after a six month lag and that should continue,'' said Bill O'Neill, global strategist at JP Morgan Fleming Investment Management in London.
``The stock market should begin to anticipate that and by the end of the year or late January we will be back to previous highs of March 2000 in the S&P 500 index.''
The U.S. National Association of Purchasing Management said on Thursday its index of non-manufacturing activity jumped sharply in June to 52.1 from 46.6 in May. A reading above 50 indicates growth.
The bounce, which followed two months of contraction, helped ease fears that a deep manufacturing slump would drag the broader economy into recession and triggered selling in Treasuries.
The report came days after a NAPM report suggested that the hobbled manufacturing sector is stabilizing.
``The lead indicators and one or two other things we watch all seem to be saying the economy should be bottoming in the third quarter and things should be getting better in the first or second quarter of next year,'' said Tony Dolphin, head of global economics at Henderson Investors in London.
RECOVERY BUT HOW STEEP?
But despite O'Neill's fairly bullish prediction of a return to former highs, most investors expect global stock market gains on the order of 7-8 percent in the coming 12 months.
``Equities should go up by about eight percent, which is better than cash and better than bonds but not by a hell of a lot,'' said Dolphin.
He sees a recovery which is constrained by high wage costs after a long expansion, a lack of pricing power by companies facing stiff competition and little room for profits to expand their share of gross domestic product.
Unlike other periods of economic consolidation, unemployment has not really spiked and wages have remained firm, leaving companies less positioned to benefit from increases in productivity by tooled down work forces when a recovery spurs a rise in orders.
``There is a growing realization that the profits recovery is not going to be anywhere as strong as it usually is,'' said Dolphin.
That leaves a bet on equities as a bet essentially on the strength of the economic recovery.
Teun Draaisma, European Strategist at Morgan Stanley Dean Witter in London thinks that for equities to rally strongly from here we would have to believe that we will return to the strong growth of profits and the economy seen in the late 1990s.
``Even if the U.S. economy has bottomed, which is possible, it is still the case that we won't go back to 4-5 percent GDP (news - web sites) growth and 20 percent earnings growth,'' he said.
``We see the markets ending the year higher than where we are today -- a few percent but not enough to be really bullish.'' |
