The Bears Roared on Wall Street
Thursday, September 04, 2008SUSIE GHARIB: The bears roared on Wall Street today. Stocks plummeted on fresh worries about the job market, consumer spending, and retail sales, pushing the major averages back into bear market territory. The Dow tumbled 344 points and the NASDAQ fell 74. Joining us now to analyze today's sell-off, Simeon Hyman, equity strategist at Lehman Private Investment Management. Hi, Simeon.
SIMEON HYMAN, EQUITY STRATEGIST, LEHMAN PRIVATE INVESTMENT MANAGEMENT: Hi, how are you?
GHARIB: Well, you know, are things really that bad in the economy to warrant this kind of sell-off today on Wall Street?
HYMAN: I think the fears are not unfounded in terms of the state of the economy. We know the economy is weak. And in fact, one of the things that we've been finding out increasingly over the last several months is that it is a global phenomenon now. It's not just -- it's not just the U.S., it's not just Europe, but it's global. And that's, you know, affecting the ability for economic recovery to start. But there is a little bit of a silver lining here. And that is that inflation pressures are moderating. We all see the headline commodity numbers come down, oil being the most obvious. But even today the prices paid component of the ISM came down. So we're moving into a world of one problem which is better than two. We do have a growth problem. Global growth will be quite poor for a little while going forward. But at least we don't have slow growth and inflation at the same time, which I think was a concern of markets for the first half of this year.
GHARIB: Well, you talk about oil prices, oil prices have been down sharply. The dollar also is much stronger. And one would think that these would be very positive developments for both the stock market and the economy. How come that didn't factor in, in today's trading?
HYMAN: Well, I think they all -- both of those are positive. You know, as the rest of the world slows, that helps the dollar on a relative basis. And oil coming down is helpful too. You know, what you need for the equity markets to recover, I think, are, I would call sort two-and-a-half things. One, inflation pressure is moderating, which we have. Two is some light at the end of the tunnel in terms of when economic growth will resume in a robust way. And I think, unfortunately, that's a little further off than most people are comfortable with. And then the third piece is, we do need credit markets to start to loosen up a little bit so that the benefits of low inflation and low interest rates can move into the equity markets. And we do see some beginnings of some positive signs there. As an example, the balances in the commercial paper market have grown for the first time in a long time.
GHARIB: Where would you put the labor market in all of this? How critical is tomorrow's employment report for the markets?
HYMAN: It is certainly a big number in the short term, because people are just trying to figure out how bad the real economy will get. For a while, actually, in the first half of this year, much of the -- much of the economic dilemma was, I wouldn't say restricted to financial services, but if you looked at the S&P 500, earnings growth outside of financial services grew 10 percent in the first quarter, and if we strip out GM (GM) as well as financials, actually grew about 10 percent in the second quarter too. So, you know, the real economy hasn't quite gotten hammered yet, but people are now obviously concerned that it is bleeding in. So it is an important number, but having one problem and not two means that the central bank, you know, has more flexibility to step in if they need to, to the extent the economy continues to slow.
GHARIB: So the big question for investors watching the program right now is, when do the markets bounce back? When is the recovery? Can you give us some kind of timetable?
HYMAN: I think the mitigation of inflation pressures certainly limits the downside. So I don't think we are at risk for a tremendous leg downward. I don't think we're going to get the big rally out of a bear market for a little while longer. We have some sideways news to deal with. We have a big earning season coming up. We probably have some weak macroeconomic data, and a real recovery could be several quarters away. But the equity markets do usually -- they are forward indicators, so equity markets could recovery a good couple of quarters before the economy. So, you know, we may see some more real directional breakout as we get towards the beginning of 2009.
GHARIB: All right. All right. Lots of good information, good analysis. Thanks a lot, Simeon, appreciate it.
HYMAN: Thank you.
GHARIB: We've been speaking with Simeon Hyman, equity strategist at Lehman.
