Job numbers
Interview: Lord Abbett & Co.---Ezrati, Milton---Economist
>> checking on the government% -bond market , treasuries lower here today, not surprising after the better-than-expected jobs data making the federal reserve interest rate hike at the end of june all but a certainty in the eyes of most fixed income investors. currencies mixed today. may’s employment report stronger than anticipated. our next guest expects the labor market to continue to recover for the rest of the year. he’ll tell us what this means for the interest rates. milton ezrati, senior economist at lord abbett. what does that mean for the rest of the year? we heard from the kerry campaign and they’re continuing forward with that it’s good, however, we need more and broader change from the market ‘s perspective. what is your take?
>> it would be good to have more jobs but from our perspective at lord abbett, the jobs numbers we’re seeing now is the payroll survey are catching up to other indicators. our take remains that the economy was creating more jobs than we saw in the statistics and now we’re seeing the catch-up. that’s one of the reasons we’re confident the numbers will continue to rise.
>> it’s very hard, i think, in the face of mounting data, numerous data points, dozens of them to point to recovery, to talk the economy down, is it not?
>> we think so. this economy has good momentum. when i say good, i mean that in both senses, that it’s moving forward but doesn’t show a sign% -of overheating. it’s an ideal economic situation for the market . i can’t comment on the politics. but we can’t talk the economy down.
>> if we move ahead to the fed. i said the fed’s move at the end of june is all but discounted, all but checked off. and recently we saw the futures market starting to add in .5% move now. what is your thought on the fed, when, how much, how quickly?
>> i think the fed will move gradually. they’re looking for 25 basis points this next move and 25 the move after that. i think the fed wants to move gradually, a, because it doesn’t want to stop the favorable economic environment or impede it in the least. and the fed is worried about the carriage rate, the leveraged hedge funds and leveraged mutual fund rates. they’re concerned about this and don’t want to cause bankruptcies. they may think these guys deserve it but don’t want to rescue them and they’ll move gradually.
>> if we look at the specifics, you’re bullish value over growth right now. why? is there really value in the marketplace?
>> there’s always value. we like value at this stage. our reading of the cycle is the value tends to outperform growth as long as earnings are moving up on a broad front. i guess people can afford to be fuzzy about―fussy about price. it’s late in the cycle when earnings slow and growth leads. we’re a long way from that.
>> if you look at the year-to-date numbers, the dow is down year to date and s&p little changed but looking at the second half of the year, the remaining seven months of the% -year, where are we going?
>> i think we’ll be up double digits before the year is out on the major indices. the market has been held up by a lot of concerns about the fed. as soon as it’s apparent the fed has no desire to kill the% recovery and the profits that go with it, i think the equity market will make a nice leg up.
>> any particular industry group or area that you think might lead that double-digit seven-month rally?
>> since the economy is leading we’d look for economically economically-sensitive area, industrials, commodities, consumer discretionary, that’s where the growth in the economy is and why where the surprises will be.
>> of late, healthcare and% energy―energy is a play on oil but healthcare, typically seen as not sensitive to the economy, has been leading. i was talking with a fund manager yesterday who said it’s almost a hedge in terms of people saying in case things don’t work out, we’ll at least have healthcare stocks.
>> you can interpret it that way. as a value manager, i would interpret it that the healthcare stocks up until recently were so horribly hammered.
>> so an hourglass, slipping in sector rotation?
>> right. even if you are skeptical about the earnings, their value is irresistible.
>> what’s going to drive the markets more through the summer, the campaign, concerns about terrorism, gasoline prices, you tell me?
>> i think the issue for the market now, as the fed starts to move and it realizes that the fed will go gradually and not kill the economy, it will again respond to earnings favorably.
>> appreciate your joining us here today, folks, milton ezrati, senior economic strategist with lord abbett. the big sports weekend ahead, a preview of the nba finals, the stanley cup and have of course, smarty jones. you can’t say that name enough, never get tired of that. he’s in a run for the roses, a run for the triple crown at the belmont stakes tomorrow afternoon in long island. we’ll be joined by our sports reporter to discuss that.
