One on One with Alec Young, Global Market Strategist , Standard & Poor's
Monday, November 13, 2006
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SUSIE GHARIB: Our market guest tonight sees stocks finishing the year on the upside. Joining us now Alec Young, global market strategist at Standard & Poor's. Hi Alec.
ALEC YOUNG, GLOBAL MARKET STRATEGIST, STANDARD & POOR'S: Hi, nice to be with you.
GHARIB: Well, the big talk in the markets today was comments by a Federal Reserve official who said that the economy is growing forcefully. What is your analysis of that comment and what it means for the markets?
YOUNG: Well, I think traders interpreted it positively today given that there are concerns about the economy slowing into 2007 and the potential negative impact that could have on earnings. So when you have a respected Fed governor coming out and sort of giving a thumbs up to the economy, I think traders took heart from that today.
GHARIB: We have a lot of economic data coming up for traders to examine. We have PPI tomorrow, CPI, housing starts and minutes from the Federal Reserve's last meeting. What do you think they're going to tell us about the economy and what do you think the market reaction will be?
YOUNG: Well, I think the market is looking for continuing signs of a soft landing so we all know that growth is going to slow. But investors want to see that it not going to slow too much. And they also want to know that the Fed could either cut interest rates if need be next year. So I think what investors are going to want to see are signs of benign inflation. So the producer price index that's out tomorrow and the consumer price index out Thursday, investors are going to want to see those numbers coming below or in line with expectations. I think to keep the positive mood going on Wall Street.
GHARIB: There is just one more Fed meeting for this year. Do you think it's going to be the same, just keeping everything steady, keeping interest rates steady or do you think we could get a cut this year?
YOUNG: No. We think the Fed is probably on hold through year end and currently our economists aren't looking for the first cut until the second quarter of next year.
GHARIB: Now you said that you are optimistic about the stock, the major stock averages ending the year on an up note. Looking into 2007, do you see the momentum carrying on the same way?
YOUNG: We do. We think that we will have a soft landing for the U.S. economy. Things will slow but not too much. Earnings will slow, but they'll still be respectable in the high single digits. And we think that is going to allow stocks to outperform other asset classes like cash and bonds as we look into 2007.
GHARIB: So what would be the catalyst to really stoke up the stock market?
YOUNG: Just continued evidence of the soft landing. We want kind of the goldilocks economy, not too hot to generate inflation and get the Fed raising rates, but not too weak to jeopardize earnings, kind of straight down the middle, steady as she goes and so far that is the sort of economic data that we've been getting.
GHARIB: So for investors who have a long-term horizon, can you name a few stock sectors and stocks that you think would be good long-term investments?
YOUNG: Sure. Well we believe that the economy is going to continue to show economic momentum so we want to stay with cyclical areas, economically sensitive areas like financials and industrials. And within those areas and the industrial group, we like Federal Express and in the financial group, we like Goldman Sachs and we also like Citigroup.
GHARIB: OK. Good suggestions. So are there any risks out there, anything that gives you pause to this positive scenario that you have been describing?
YOUNG: Well, one thing that has really helped the stock market in the past few months is the 25 percent pullback in crude oil prices. Crude currently seems to be trapped in a trading range in the high 50s to the low 60s in terms of the dollars per barrel, so we want to see a continuation of tame energy prices. As long as they stay in the current range, potentially go lower, that would be great. What we don't want to see is a sustained move above $65 a barrel.
GHARIB: And just going back to the stock market suggestions that you made, Fedex, Citigroup and Goldman Sachs, do you own any of those stocks? Can you give us your disclosure please?
YOUNG: Sure, I have no ownership whatsoever in any of those companies.
GHARIB: All right, thank you very much for coming on the program. I really appreciate it.
YOUNG: Thank you.
GHARIB: We've been speaking with Alec Young, global market strategist at Standard & Poor's.
