Stuart Schweitzer of JP Morgan Private Bank Offers His Economic Outlook
Monday, July 20, 2009SUZANNE PRATT: Joining me now with his thoughts on the CIT deal and his outlook for the stock markets is Stuart Schweitzer global market strategist for JP Morgan Private Bank. Stu welcome back to the program.
STUART SCHWEITZER, GLOBAL MARKET STRATEGIST, JP MORGAN PRIVATE BANK: Thanks so much Suzanne.
PRATT: Tell me about the CIT deal. How important was it today do you think in continuing this overall positive tone we've seen in stocks?
SCHWEITZER: I think it was really important. CIT has about a million customers in America. So financing from CIT is really important particularly as you said to smaller businesses all across America.
PRATT: Not only the CIT deal. But better than expected earnings, were also out there again and they've been out there for a week or so helping to set this nice positive tone for the markets But when you talk about earnings you aren't really talking about profits being better than expected. You say we should be focused on revenue, tell me why revenue is so important to the story right now?
SCHWEITZER: Sure thing. Well I want to see both earnings and revenue but particularly revenue sales revenue very important here. Take the first quarter take last quarter companies beat on earnings estimates but their revenues fell short of Wall Street's expectations. And how did they do that? How did they beat on earnings? Unfortunately it was by cutting so much staff and cutting jobs. And so I want to see revenues get better so companies can stop cutting people.
PRATT: Do you expect this tone for better revenues continue? What are we seeing from companies in terms of guidance about the 3rd quarter so far?
SCHWEITZER: It's beginning to get a little bit better. And so far through the early stages of this reporting season the companies that have reported have come in with average revenue gains of somewhere around 5%. Not too bad considering the economy has been shrinking. But I wouldn't expect an immediate turn around in the labor market. In the last couple of recessions it to 15 to 18 months until the recession ended and the unemployment rate peaked. I hope it will come sooner this time. But I do think it will take a bit of time yes.
PRATT: Let's talk about that labor market everyone's been mentioning the jobless recovery and the thing that you told me worried you the most is the human toll of this recession all these jobs lost. How is it possible that we are going to continue to see a market rally with when we are seeing all these job cuts continue?
SCHWEITZER: I think it's very challenging the market rally couldn't continue in my opinion for the long term unless consumers are able to start spending again. In the near term if companies produce better earnings and if output begins to increase because companies have slashed their inventories so now they need to ramp production back up. I think that can create a little bit of positive spirit around the economy and help the market to do better for a while.
PRATT: So what is your best guess. Do you think this rally is for real? Or do you think it is a potentially bear market trap?
SCHWEITZER: Oh I think this rally is for real, it just hasn't been tested yet. It hasn't been tested by continued high unemployment which we are going to have. It hasn't been tested by a financial problem that maybe doesn't have a successful solution maybe something that comes out of the European banking system where there are many problems.
PRATT: Speaking of Europe and I know you are a global strategist. Which economies are likely to come out of recession first? And what are the investment implications of that story?
SCHWEITZER: I think it's very clear number one out is Asia. Non-Japan Asia, Japan is kind of sluggish here. But the rest of Asia led by China is already coming out. China had 8% or 7.9% GDP growth reported just a few days ago. And the Chinese government says they are going to keep up the very heavy stimulus spending that they've been doing. And I think we are actually second behind non-Japan Asia because we are doing ever so much to promote growth here. Europe and Japan I think lag behind they are doing less. And they are much slower to correct the problem of rising labor costs. And that is painful here when we make the cuts but it positions us to be much more competitive globally.
PRATT: I think we are going to have to leave it there
SCHWEITZER: Always a pleasure.
PRATT: My guest Stuart Schweitzer global market strategist for JP Morgan Private Bank.
