Byron Wien of Blackstone sees a Goldilocks scenario ahead for the U.S. economy and financial markets. Just because 2013 was an outstanding year for stocks does not mean 2014 can't be also, according to his analysis.
Wien, a Wall Street investment strategist and senior advisor at Blackstone Group, is sticking to his story that the second half of the year looks positive for global stock markets.
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“Almost every indicator I am now looking at is, in fact, showing a better tone to the economy,” he wrote in a commentary
for his firm's blog.
He cited an optimist’s checklist of favorable data on consumer confidence, retail sales, bank loan growth, capital spending.
“Based on historical trends, we will not have to worry about wage acceleration until the unemployment rate hits 5.5 percent, which probably will not happen before sometime next year,” he wrote.
The only blemishes he found in his rosy scenario were a drop in housing starts and a decline in building permits, but they were enough to give him a bit of caution.
“If housing continues to be weak, I will probably have to change my view.”
Wien noted the S&P 500 has risen 186 percent since the 2009 low, which makes the current bull market a bit long in the tooth. But that is not deterring him at this point.
“This is not unprecedented. In the 1990s the S&P 500 continued rising for 1,700 days before a 10 percent pullback and over 3,000 days before one of 20 percent.”
Wien said many investors are fretting about the possibility of a serious correction when the Federal Reserve finally tightens rates after years of ultra-loose monetary policy.
But Wien predicts the first rate hike will not occur until mid-2015, and cited research showing first rate hikes usually generate about a 5 percent temporary drop in stocks.
Wien said that if earnings reach his target and the S&P 500 sells at 20 times earnings, the index could hit 2,300 his year, about 17 percent above current levels.
“I see neither a recession nor a bear market in sight even though we are five years into the economic and market recovery,” he concluded. “Let’s hope geopolitical turbulence doesn’t upset that outlook.”
Bob Doll, chief equity strategist at Nuveen Investments, is also optimistic. In his weekly investment commentary
, Doll agreed the U.S. economy is displaying signs of broad acceleration.
“Along with an accelerating economy, earnings have also been improving, and together these factors should provide a tailwind for equity prices,” Doll predicted.
Doll said stocks may be overdue for a correction, but he doubts it would be a serious one, saying that “absent a sharp increase in bond yields or rising expectations of an imminent Fed rate hike, we think the risks of a sustained pullback are quite low.”
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