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Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: cthd who wrote (26030)	6/5/2001 12:28:49 PM
From: stockman_scott	Read Replies (1) \| Respond to of 37746

Pro Forum: David Sowerby, Chief Market Strategist for Loomis Sayles Tuesday June 5, 12:00 pm Eastern Time Forbes.com By Mark Lewis _______________________________________________________ <<The latest employment figures indicate a worsening economy, but investors need not despair. David Sowerby, chief market strategist for Loomis Sayles, says stocks will continue to rally this year even while the economy remains in the doldrums. Investors who look beyond the large-cap indexes to the broader Russell 3000 will find plenty of stocks that are priced to move higher, he says, especially considering the tax cut passed by Congress and the likelihood of further interest rate cuts from the Federal Reserve. Forbes.com: The latest employment report showed a loss of 19,000 jobs during May, with manufacturing especially weak. Will the economy turn around anytime soon? Sowerby: A year ago we were creating on average 200,000 new jobs per month in this country, and in the last several months we've been moving backward. And that has simply been indicative of an economy that is not in recession but is likely stuck somewhere between neutral and first gear. Fourth gear is not, I think, going to be a reality until sometime in early 2002. How will the Fed react to the latest employment numbers? The report probably gives us more ammunition for at least a [further] half a percentage point rate cut from the Federal Reserve. And one of the other things that compels one to believe that there will be additional Fed easing is that the price component of the National Association of Purchasing Management index showed some improvement in the month of May, and that probably gives the Fed more information that the economy is sluggish to weak and that inflation rates remain very tame. What will it take to get the economy moving again? What's positive is that the Fed has reduced interest rates by 2.5 percentage points in five months. Plus, we finally got the good news that the tax cut was passed. I certainly had hoped for a broader and more meaningful tax cut to reinvigorate the economy, but nevertheless that, too, is a positive catalyst. So at least two out of the three most important ingredients are now in place: the Fed easing and the federal tax cut. The third ingredient is for world central banks to step up their own interest rate reductions. Will they? They will. I think they'll do it grudgingly. I think they will be a little slower to react. They probably want to show their independence. But, importantly, they're seeing that their unemployment rates are still higher than ours are here. Even though we're at 4.4%, most of Europe is still closer to 8, 9 or 10%. And their inflation rates are as low and in some cases lower than ours. So there's certainly the flexibility for central banks to ease. I would just rather have it come sooner than later. Where do you see the stock market going from here? Ultimately, there are three or four ingredients that are driving the markets to higher levels. There is the anticipation of Fed easing and of what that will do to economic growth and corporate earnings. Second, in years when we've been able to accomplish a tax cut, stock prices compound at a 15% growth rate. And I think the third positive ingredient is that the average stock is very much on sale. If I was to look beyond the S&P 500 and look at a broader universe, such as the Russell 3000, the median company has a price-to-earnings ratio of about 14.5 on estimated 2001 earnings. That tells me that many stocks are very attractively priced, given the Fed easing, tax cuts, low inflation and improved market breadth. And that's why I think there's probably another 12% to 15% upside in the market between now and year's end.>>