One on One With Stuart Schweitzer of J.P. Morgan Asset and Wealth Management
Monday, July 31, 2006
|
|
|
|
SUSIE GHARIB: Our market guest tonight says he is not an aggressive buyer of stocks right now. Joining us, Stuart Schweitzer, global market strategist with JPMorgan Asset and Wealth Management. Hi Stuart.
STUART SCHWEITZER, GLOBAL MARKET STRATEGIST, JP MORGAN ASSET & WEALTH MANAGEMENT: Hi, Susan.
GHARIB: Let`s start by talking a little bit about what`s going on overseas. What impact do you find that the conflict in the Middle East is having on the markets over here in the states?
SCHWEITZER: I think it`s got people worried, but I honestly don`t think that it`s the dominant worry in the markets today. I think it`s mainly all about the Fed, interest rates and the economy, and then corporate profits.
GHARIB: We`ll get to the Fed in a moment, but tell me, do you find at all that CEOs are having their confidence shot a little bit about what`s going on in the Middle East, maybe becoming a little more cautious about making business decisions and expansion plans?
SCHWEITZER: Oh, I think so. I mean let`s face it. Oil prices have been moving up over the last couple of years. Here you have yet another reason to worry that we could have still higher oil prices. And let`s face it, a couple of years ago when oil started to move up, interest rates were a lot lower than they are today. Today oil is moving up as a headwind when we already have an interest rate headwind. That`s a double whammy and people are worried about that.
GHARIB: Let`s talk a little bit about the interest rate headwind because now investors were talking a lot about comments made by two Federal Reserve officials today about what the Fed might or might not do at its meeting on August 8. What`s your view of what the Fed`s going to do and the market impact?
SCHWEITZER: Well, I think that if we are lucky enough to have a cool employment report on Friday, one that shows only a moderate employment gain, of the order of what we have been having the last few months, I think the Fed will go on hold. I think they want to go on hold, but I`ll tell you, if employment comes back and it`s been -- until the last few months, employment growth has been strong and the unemployment rate had been coming down and the Fed`s been worried about the labor market getting too tight for inflation to stay down, if we get that bad combination of tight labor market conditions again on Friday, the Fed`s going to have to go next week. So, we`ve all got to keep our fingers crossed that the job market is not too hot. We don`t want it too cool, not too hot, not too cool, somewhere in the middle.
GHARIB: And if it is somewhere in the middle, what do you think the Fed is going to do?
SCHWEITZER: Then I think they`ll go on hold and I think they`ll hope that the slowdown this we saw in the economic reports last week with GDP growth slowing to only 2.5 percent and it had been 3.7 percent in the prior year. I think that that slowdown in GDP needs to continue. We need to see more below-trend GDP growth to create a little slack in the economy, basically to take the inflation threat away, give the economy a second wind. That`s what the Fed`s trying to accomplish.
GHARIB: Let me pick up on another comment that you made. You talked about oil prices a moment ago, but what about natural gas prices? As you heard our report just a moment ago, they were up 15 percent today. Is that a problem for the markets?
SCHWEITZER: Well, I think it`s a small problem. It`s probably temporary, given that there`s plenty of natural gas around and the price has moved up basically just because of all this hot weather, which itself is probably going to cut into spending for a little while. People aren`t going to buy back-to-school clothes, for example, while the heat is blazing. But I don`t think these are lasting problems. I think energy prices are going to be driven by events in the Middle East and the pace of economic growth. And so far, there`s no reason to think that we`re going to get any relief on that front anytime soon.
GHARIB: Now, you told me that you are not an aggressive buyer of stocks right now, but as you look at your client portfolios and the uncertainly out there and different places of the world where you can invest, where are you putting some money at this time?
SCHWEITZER: Well, I -- you know, we want to be buyers. We just want to be buyers at better prices, because we believe that the market for now is stuck in a trading range and really, not going anywhere particularly fast. But when we think about where to be buyers right now, it`s in areas of safety. So, within the U.S., it would for example, be more large caps than small caps. It would be more consumer staples and less consumer cyclicals. It would be more telecoms and less industrial kind of stocks and less material kind of stocks. By the way, more health care and then internationally, I have to say, value has been created by the sell off that we had in the spring. So, I like European equity and I like Japanese equity, but they`re not really likely to thrive until we get to the other side of this slowdown, the other side of this correction.
GHARIB: We`re going to have to leave it there. Stuart, always a pleasure talking to you, full of good information.
SCHWEITZER: Likewise.
GHARIB: We`ve been speaking with Stuart Schweitzer, global market strategist with JPMorgan Asset and Wealth Management.
