In a new interview with WealthTrack’s Consuelo Mack, ISI Group’s Francois Trahan and Ed Hyman — two of the top-rated strategists in their fields — offer their takes on where the market and economy will head in 2010.
Trahan, ISI’s chief investment strategist and Institutional Investor magazine’s 2008 top-ranked investment strategist, told Mack that he thinks 2010 will involve a shift from a broad market rally to a stock-picker’s market. “I think it’s going to be a much more challenging year, and I think you’re really not going to make your money on the big market call up or down,” he said. “I think you’re going to make your money on the sector picks and really the traditional stock picking.”
While “early cyclicals” like consumer discretionary stocks have surged in 2009, Trahan says he thinks more conservative areas like healthcare, consumer staples, and utilities will be the place to be in 2010. He also says that inflationary pressures could make energy, materials, and industrials very interesting. As for the broader market, however, Trahan says he wouldn’t be surprised to see the S&P 500 within 5% (up or down) from current levels a year from now. Dividend yield and free cash flow will be important in stock-picking, he says, adding that investors in index funds may want to switch to mutual funds.
Trahan is also bullish on Southeast Asia, saying that it’s a good place to look for upside surprises because of the region’s robust growth.
Trahan sees good things for the economy for 2010, saying that more than half the stimulus will kick in during the year and that we’ll feel the lagging impact of interest rate cuts. After that, however, many questions linger. He says it’s “difficult to be very bullish” for 2011.
Hyman, meanwhile — ISI’s chairman and the top-ranked economist on Wall Street for a record 30 straight years — says the economic recovery should be led by business spending, not consumer spending. And the most important type of business spending will be on employment. Gains in U.S. employment are “key to the sustainability … of the global economy”, he says.
Hyman sees U.S. GDP growing by 4% in real terms in 2010, but sees unemployment at a still-high 9.5% or so a year from now. One problem that could occur, he says, is that those who have given up looking for jobs could come back to the market as jobs are added — which means that job growth won’t necessarily translate to unemployment rate decreases.
Hyman says the economy is improving, and in some foreign countries big gains are being made. He likes emerging market stocks, and says investors can get exposure to emerging markets by buying foreign stocks, or by buying stock in U.S. multi-national companies.