This was the consensus of participants last week at the annual forecast luncheon of the New York Society of Security Analysts entitled “Market Forecast: Return to Prosperity or False Dawn?” Vinny Catalano, president and global investment strategist at Blue Marble Research, moderated the event.
This story first appeared in the January 11, 2010 issue of WWD. Subscribe Today.
David Malpass, president of Encima Global and former chief economist at Bear Stearns, predicted gross domestic product growth of 3 percent for 2010, but stopped short of concluding that a “V-shaped” recovery is in the works. Such a vigorous bounceback would typically call for 6 percent GDP growth, he said.
Malpass said the economic situation is one in which there is much credit that is “not broadly distributed.” He explained that small businesses don’t have as much leverage as they did in years past, and that the federal government’s goal is to have banks “heavily capitalized to preserve the Federal Deposit Insurance Corp.,” even if that goal hurts small businesses and the potential growth of the economy.
Christian Menegatti, head of global economic research at Roubini Global Economics, expects the 2010 annual growth rate to be 2.3 percent, what he called a “U-shaped” recovery. He considers the recovery to be “still quite weak, anemic” and expects another wave of corporate defaults.
The good news is companies now seem to be in a “restocking mode” after actively working down inventories, but he cautioned that if consumer demand fails to come back, firms could again be in a situation where they are “overproducing.”
In addition, he pointed out that a “U-shaped” recovery might be good overall for the economy, explaining that if growth were to occur too fast, the Federal Reserve might start to tighten rates too soon. That would have the effect of removing the stimulus too soon and could cause a possible double-dip downturn in which the economy would lapse back into a recession, Menegatti explained.
Philip J. Orlando, chief equity market strategist at Federated Investors Inc., the most upbeat of the participants, said the recession ended in mid-2009 and that 2010 will end in “good shape.” While he believes unemployment may reach a high of 10.5 percent this summer, he also noted the unemployment rate is a lagging indicator and the labor front is actually “starting to heal.” He said the housing market bottomed out “earlier last year” and that benefits from its rebound could be realized this year.
Contrary to some who think consumers may pull back on spending, Orlando said GDP isn’t a primary concern because consumers still have to “feed their families and put gas in tanks.” He also cited September 2009 as an important month where the inventory cycle hit its lowest point, and said a restocking cycle began the following month.
Orlando doesn’t expect the Federal Reserve to begin tightening rates until June or August, and said the S&P 500 could hit 1,200 points, and maybe even 1,350, by the end of the year.
Other participants included Daniel Clifton, partner and head of Strategas Research Partners’ Washington office, and Damien Conover, senior equity analyst for Morningstar, covering the pharmaceutical industry.