Tags: Lenhoff | Blue | Chip | Stocks

Strategist Lenhoff: Blue-Chip Stocks to Gain Steam This Year

Friday, 16 March 2012 07:55 AM

Blue chip stocks in big-name companies will gain steam as the year progresses, rising on the coattails of an improving U.S. economy and on stronger developing markets, says Mike Lenhoff, chief strategist at Brewin Dolphin.

"There has been a slight loss of momentum, but I don’t think they have run entirely out of puff," Lenhoff tells CNBC.

"The refocusing in the developing world away from inflation to growth, and better U.S. performance, suggests to me that by the end of this year we are going to see the resumption of momentum."

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Big companies, multinationals especially, will see demand for products and services grow in the U.S. if unemployment rates continue to improve.

However, as the economy improves, wages will rise and so will energy costs.

"We are seeing unit labor costs shifting up now," Lenhoff says.

"We are going to see a transfer of the recovery onto the personal sector, and will move from nothing but bottom line growth to a bit more top line growth and margin squeezes. The top line growth will come from more confidence and spending."

The Federal Reserve recently left interest rates unchanged at near zero percent, but gave a fairly upbeat assessment of the economy, forecasting output to grow and unemployment rates to fall.

However, the forecast was not a glowing one, as headwinds still face the country.

Plus the Fed made no mention of a need to consider monetary stimulus measures such as a third round of quantitative easing (QE3).

Since the downturn, the Fed has rolled out two rounds of quantitative easing, which are asset purchases from banks designed to stimulate the economy via massive injections of liquidity when interest-rate cuts alone don't work.

"The statement was slightly less downbeat on the economy," analysts at RDQ Economics write, according to the AFP newswire.

"This report neither takes a step toward nor backs away from QE3."

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