One on One with Art Hogan, Chief Market Strategist at Jeffries & Company
Thursday, October 29, 2009
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SUSIE GHARIB: Joining us now for more analysis on the economy and the markets, Art Hogan, chief market strategist at Jeffries & Company. Hi, Art.
ARTHUR HOGAN, CHIEF MARKET ANALYST, JEFFERIES & CO.: Hi, Susie.
GHARIB: Well, you heard our report. There are a lot of issues for the economy, whether you are talking about jobs, you know, home sales, consumer confidence, the list goes on. Is the economy really getting better?
HOGAN: It's absolutely getting better Susie. I think the way to look at this is to look at the fourth quarter and first quarter GDP growth rates that are just three months behind us. And we are minus five and change and minus six in change in terms of GDP growth rates to a positive three, better part of 10 percentage point in GDP growth in two quarters. You'd have to go back pretty far in history to see that kind of improvement. I think it is a very good sign at this point in the cycle. The next big bridge to cross though is can we actually continue this kind of GDP growth rate, this kind of economic recovery when we start to see the government pull back on stimulus and have an economy that has to be self-sustained. That the big question in 2010 and we're pretty confident we're going to see growth. It is just not going to be as rapid as we are used to.
GHARIB: Let me ask you this way. Should the markets be at these levels? Are they getting too far ahead of what is really going on in the economy?
HOGAN: It's everybody's concern. I think the concern is that this market is somehow outpaced the economic growth. What we have seen reflected in the third quarter earnings reporting season is quite the opposite. We have actually seen an improvement in the quality of earnings. And by that we mean it's not just the bottom line, the earnings number where you could actually as a company sort of cut your costs, cut your expenses, (INAUDIBLE) tear down inventory, lay off, et cetera. But actually we've seen improvement in the top line. And this is the first quarter in three quarters we've actually seen companies beat estimates in the top line so we are seeing improvement in both the top line and the bottom line. It is not an improvement meaning an increase in top line revenue growth. We haven't seen that yet but we are certainly getting better earnings reports from corporate America. That is a very good sign. I think that as you look at what we expect to see in 2010, people are buying stocks right now for earnings growth in 2010, not for earnings growth in 2009.
GHARIB: But what if the economy stalls out in 2010? What happens to the market?
HOGAN: Well, that is a big fear. If we go back into negative GDP growth rates somehow, whether it's a huge spike in energy prices or some geo political concern that is really not on the horizon that could upset the apple cart here, you're going to see stocks sell off. I don't think we're going to see a sell-off in the magnitude that we saw this year. We were in a historic financial collapse and the lows that we reached in March are probably not going to be revisited any time soon. But this market could certainly take a pause and give back some of its gains if in fact we don't see the modicum of growth that we are expecting in 2010. We expect to see on average about 3 percent GDP growth for the entirety of 2010 with that being back-end loaded. By that we mean the first half looks like 2 to 2 1/2 percent and the back half looks like 3 1/2 to 4 percent averaging out to a 3 percent growth rate in 2010. The major.
GHARIB: I want to get, because we're going to run out of time in just a minute. For people ready to put money in the markets, what would you say are the stocks that would do well in an economic rebound?
HOGAN: An economic rebound it's going to be highlighted by inflation because the dollar is going to weaken and commodities will continue to rise, are things like energy stocks from the fully integrated oil companies all the way down to the folks who take it out of the ground and deliver it to you. So think about ExxonMobil at the top end of that and think about Schlumberger and Halliburton and the oil service companies all the way down to the folks that deliver it to you personally. They have natural resources that are rising with the weak dollar. Other companies like agriculture companies, John Deere and Agco are great plays on an agriculture complex going up on commodity prices. Anybody that has commodity exposure or natural resource exposure is going to have a great 2010. Also look at technology companies. The top 10 technology companies could probably buy the next 100 companies down the list if they wanted to. All of these companies that talk about being on a shopping spree, whether it is John Chambers at Cisco or Bill Gates at Microsoft, everyone is talking about the fact that they are going to make acquisitions. We've seen some of those already. We'll see a lot more next year.
GHARIB: Sorry. We have to cut it rate here. Art, real quickly, any disclosures to make about those stocks that you mentioned?
HOGAN: No disclosures on any of those that I mentioned. We do cover them, all the research and we do have a relationship as a company, but no personal disclosures to make.
GHARIB: All right, well that is good enough. Thank you so much, Art, interesting information. Appreciate it.
HOGAN: Thank you.
GHARIB: My guest tonight, Art Hogan, chief market strategist at Jefferies & Company.
