Three top market strategists — Francois Trahan of ISI Group, Dennis Stattman of the Blackrock Global Allocation Fund, and John Dorfman of Thunderstorm Capital — had some encouraging views on the stock markets on Consuelo Mack’s WealthTrack recently, though they think the U.S. economy could be in for a long haul in righting itself.
Trahan noted that the current bullish turn is the fifth 10%-plus rally we’ve seen in the past year, but the first that has occurred simultaneously with a rise in leading economic indicators, including the ISM index, the Dallas-Fed index, the Richmond-Fed index, and the Philly-Fed index. “This is not just an oversold pop like the other ones,” he said. “This is one that is about better economic prospects down the road. So I think it’s legitimate, essentially is the way to think about it. And I think it’s the first inning of something that’s going to last quite a while.”
Because we’re in the “first inning” of the economic recovery however, Trahan says growth will be subpar for the foreseeable future. “To have GDP growth above trend, you need leverage and to have leverage you need savings and unfortunately we have none,” he says. “We need to reload and it takes a long time. … We haven’t really started. It’s not an easy process. It’s going to take a long time. There’s going to be opportunities in the stock market, but over a long period of time I think it’s going to be challenging for the economy.”
Stattman, meanwhile, says he thinks “freefall in the world economy is over”. But, he adds that he thinks the recovery will play out in different ways in different places. “I believe we’re primarily in an inventory correction in the exporting countries — Japan, the rest of Asia,” he said. “I think we’re in a balance sheet correction in the U.S. and the U.K., and that balance sheet correction is probably going to play out over significantly longer period of time. … It will be more of a shallow recovery than what we’re accustomed to looking at [in] the typical post-World War II experience in the U.S.” But outside the U.S., he says, in exporting countries — especially those like China that have good financial reserves — the recovery could be more of a “V” shape.
Dorfman reiterated his past findings on “waterfall declines”, like the one we’ve been through. Usually, the market goes through a “basing period” following such declines, and 90% of the time it has then gained significant ground in the next year. Some of those were bear rallies, Dorfman says, but that doesn’t mean you should pass them up. “Are we in a bear market rally or a rally that’s the start of something greater and more long term? I don’t think we have to decide that until later this year,” he says, adding, “I feel fairly confident that we’re seeing glimmerings of hope in the economy.”
Asked to give their one main investment pick right now, Trahan cited commodity-based ETFs, which tap into international growth while protecting against a potential dollar decline; Stattman and Dorfman both like healthcare firms, with Stattman citing Bristol-Myers (BMY) and Dorfman citing Pfizer (PFE).
The link above connects to a segment of the WealthTrack interview. This link will take you to a transcript of the full discussion.
