One on One with Stuart Schweitzer, Global Market Strategist at JPMorgan Private Bank
Wednesday, November 07, 2007
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SUSIE GHARIB: Joining us now with more analysis, of today's sharp stock sell off on Wall Street is Stuart Schweitzer, global market strategist at JPMorgan Private Bank. Hi, Stu.
STUART SCHWEITZER, GLOBAL MKT. STRATEGIST, J.P. MORGAN PRIVATE BANK: Hey, Susie.
GHARIB: All right. Give us your analysis of what was behind today's big sell-off.
SCHWEITZER: A little bit of everything, I think and certainly a lot of concern ultimately about what all of the news means on oil, on housing, on the dollar, means for the outlook for the economy and corporate profits. And I think that we are headed into more challenging conditions than we got used to over the last few years. This economy is poised to stay very sluggish, I believe, for several more months with job growth weakening. But I don't think it's going to end up being a recession. If that's right, then the market should at some point ultimately find its footing.
GHARIB: Stu, my colleague Paul wants to join in on this conversation. Paul?
KANGAS: Yes, Stuart, you know, on recent sharp sell-offs at least we had during the day some reflex rallies, some signs of bottom fishing. This one we saw nothing like that. How much further down can we go without some kind of a bottom occurring?
SCHWEITZER: Well, Paul, I think you made an important point. The fact that the market closed at its lows is probably a pretty negative omen for the days immediately to come. I think when in the last hour you typically have market professionals trading and if the market goes down then that says the pros are looking for things to get weaker. I don't know where the bottom will be or when the bottom will be reached. It does feel to me as though an awful lot of the bad news is getting discounted. Take the financials which are down so much this year. A lot of the bad news on the financials is getting discounted. If we don't ... all of it, I'm not so sure about that. I do think in the end that this market is going to get help from the Federal Reserve, not withstanding the more balanced directive that they issued last week after their meeting.
GHARIB: Stu, today there was a lot of talk on Wall Street about dollar weakness and a lot of concern that foreign investors want to get out of dollar-denominated securities. How concerned should American investors be about that?
SCHWEITZER: I'm not that concerned, Susie. I think that the real risk with the weaker dollar is the risk that we get higher inflation because foreign products cost more and then domestic manufacturers raise their prices. That whole chain of events, we've seen that movie before and that's not a pretty picture to watch. But in fact, inflation does look outside of oil. That's a big outside. But outside of oil it looks like inflation is broadly contained. If inflation were really getting to be problematic, we wouldn't have the bond yield down at 4.3 percent as it is. If bond yields were rising in here, I'd be a lot more worried. But bond yields are going the right way in my opinion.
GHARIB: You mentioned the Fed a moment ago. A lot of the people that I've been talking to and also Fed officials have been sort of hinting that there aren't going to be any more rate cuts any time soon. Is there anything that Fed Chairman Ben Bernanke can say tomorrow when he's testifying at Congress that will calm investors?
SCHWEITZER: Well, I think he should remain balanced in his statement but acknowledge that if the economy is threatened, that the Fed will be there. Yet they don't want to be soft on inflation. The worst thing of all would be to allow the weaker dollar, to allow the higher oil prices, to feed into a generalized rise in inflation. That would be very damaging and I don't think he'll concede that point at all.
GHARIB: One quick last question. What should investors do in this climate, long-term investors?
SCHWEITZER: We have been advising our clients at JPMorgan Private Banks to keep a balance between higher risk and lower risk assets in their portfolios, roughly a 50-50 split between higher and lower risks and within the lower risk to have more cash than normal. More cash helps you to do two things. Number one, it lets you sleep better at night. That's not a bad thing. And secondly, it gives you the dry powder (ph) to take advantage of bargains in the market when and if they arise and it sure looks like they are a-coming.
GHARIB: OK, sure does look like that. Thanks so much, Stuart. We appreciate you coming on the program.
SCHWEITZER: Always a pleasure.
GHARIB: Our guest tonight, Stuart Schweitzer, global market strategist at JPMorgan Private Bank.
