One on One with Phil Orlando, Chief Equity Market Strategist at Federated Global Investment Management
Monday, November 03, 2008
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SUSIE GHARIB: Our market guest tonight is hopeful that stocks will rally after the election and into 2009. Joining us now Phil Orlando, chief equity market strategist at Federated Global Investment Management. Welcome back to NIGHTLY BUSINESS REPORT, Phil.
PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED INVESTORS: Pleasure to be back, Susie.
GHARIB: Very encouraging outlook that you have for the markets. Give us your analysis.
ORLANDO: Well, the market is obviously in one of the worst bear markets of the last century. But what we've been looking for is when does the market begin to move up on bad news? We believe this recession started a year ago so -- and we think it's going to continue into the middle of next year. But just over the last couple of weeks, the ISM manufacturing number today, worst number in 26 years, the consumer confidence number last week, the worst number in the history of the index. Bad employment numbers, bad GDP numbers, yet, the market has bottomed or stopped going down on October 10th, has actually enjoyed a pretty good rally here over the last couple of weeks. So our view is that the market is starting to price in the recession and starting to recognize that by the middle of next year, we're going to start to come out of this recession. That's exactly what happens historically. The market starts to come out of this recession somewhere in the middle to two-thirds through and I think that process is starting to occur.
GHARIB: Many economists are predicting a very nasty employment report on Friday. Could that undermine this process that you are talking about?
ORLANDO: We agree, we think the jobs report, employment's been down nine months in a row here. We've lost three quarters of a million jobs. We think the October report which will be released on Friday will be the worst one this year. Maybe we're going to lose another 200 to 250,000 jobs. The rate of unemployment may go up to about 6.5 percent. We don't think the rate of unemployment is going to stop going up until it gets into the seven or maybe even eight percent neighborhood at some point next year. But employment is a lagging indicator. And I think that what I have just told, I think the Street at this point has already understood what is going on in terms of employment. It's largely anticipated and discounted.
GHARIB: Let's talk a little bit about tomorrow's important presidential election. What do you think a McCain victory would mean for the stock and bond markets? And what would a Obama victory mean for the markets?
ORLANDO: Well, I think regardless of who wins, this election and the primary season, the general election season has been dragging on for about 21 months. And investors want to put this behind us. So I think that the resolution regardless of whether McCain wins or Obama wins, I think we're going to be met with a typical year-end election rally, sort of a sigh of relief rally, if you will. And I think we're likely to see better share price performance over the next two months coming on the heels of just dreadful performance over the last year and certainly over the last two months.
GHARIB: The big worry among many people, strategists, individual investors I talk to is that there is going to be some other kind of financial crisis surprise that's going to be around the corner. And also they are very worried about the unwinding of a lot of hedge funds. How are you factoring all of those into your market forecast?
ORLANDO: Well, our view is that what Secretary Paulson and Chairman Bernanke have done over the last couple of months has been very bold, very creative, very aggressive. And while they may not have gotten everything exactly right, I think what it does show us is that they're not afraid to act. And there's absolutely no way they're going to let a major financial institution fail. So I think that investors are starting to take confidence here that as a result of the actions out of the Fed and out of the Treasury, the Armageddon scenario frankly is off the table. We do not believe that we are going into a global financial services depression. What we are looking at is a recession.
GHARIB: All right. We just have a few seconds left. What are you telling your clients to do in this environment right now?
ORLANDO: Right now we are neutrally invested. We are sitting tight. But we are starting at the margin to start to put some money back into stocks, in the areas that we like. Technology, energy, financials, consumer staples and health care. And we think that looking out over the next six to 12 months, stocks are going to be materially higher than they are today.
GHARIB: All right, Phil, thank you so much for come on the program again. Nice to see you.
ORLANDO: My pleasure, thanks, Susie.
GHARIB: My guest tonight, Phil Orlando, chief equity market strategist at Federated Global Investment Management.
