Michael Kantrowitz of Wolfe Trahan: All Roads Point to Higher Stock Prices This Fall

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Michael J Kantrowitz CFA

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Show transcript of Michael Kantrowitz of Wolfe Trahan: All Roads Point to Higher Stock Prices This Fall

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-Bloomberg's Financial Conditions Index for the U.S. and Europe is at 13-month highs and back to neutral territory. Fat-tail risks in Europe have lessened. European Composite PMI has been flat or up for the past 2 months. Data has stabilized in the core cyclical sectors of Europe's economies.

-Wolfe Trahan Leading Index has been rising for a couple months and argues bear case of near-term recession is unlikely

-Next, 4 to 5 months will be a fast and furious move upward in the market and in economic data. How long it will last is dependent upon how high commodity prices rise and re-exert inflationary pressures on the economy and consumer

-Their bullish call is not based on GDP growth but on data surprises to the upside due to very low expectations

-Housing sentiment data, NAHB housing index at 5-year high, will carry back into consumer sentiment and spending patterns, which lags housing data by a year or more. Going into a recession you've always had these housing series getting worse, not what you're seeing currently

-Central banks are loosening across the globe, in contrast to 2011 when central banks tightened in response to Fed's inflationary QE2. Currently, inflation rates are tame and central banks are very accommodative, rather than tightening

-Risk trade has come back: smaller cap stocks, cyclical sectors doing well. Investors rotating out of defensive stocks

-Past the thick of massive layoffs at the state and local level. Outlook for employment will continue to improve

Jim welcomes back Michael Kantrowitz CFA, Director, Portfolio Strategy & Quantitative Research at Wolfe Trahan & Co. in New York. Michael notes that his research points to higher stock prices this fall and a turnaround in the leading economic indicators (LEI’s). He believes the "Risk On" trade is returning and the new sector leaders will be Industrials, Energy and Materials.

Michael’s expertise includes business-cycle forecasting and its implications for sector, industry and strategy rotation within the investment portfolio. Prior to joining Wolfe Trahan in 2010, Michael spent over three years as a managing director at International Strategy and Investment Group (ISI). During his time at ISI, Michael worked closely with François Trahan in building the Portfolio Strategy and Quantitative Research products. His team has consistently ranked among the best in Institutional Investor magazine’s All America Research poll.

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