Interview: Wells Capital Management
>> stock indexes traded lower today on a fresh spike in oil prices and a weaker-than-forecast jobs report. we’ll speak with chief investment strategist at wells capital management, james paulsen, joining us from minneapolis with his outlook on equities. what does the jobs report mean for stock investors?
>> i think the montly job report is so volatile and subject to revision that probably not a lot month in and month out. you have to wait over the course of months and learn what the revisions are so i don’t think you can react to any one month. if you look at the last couple, three months, and combine the household and payroll numbers, i think we’re still creating 150,000 to 175,000 jobs a mont, enough that, about what we’ve been doing and the consumer seems relatively happy with that number because the confidence index is up, spending has been pretty good so i don’t think it’s a disastrous report today by any means.
>> is oil a problem, that crude is back near $55 a barrel? >> i think that’s more important than the jobs report that, oil keeps spiking back up. even though the dollar’s been stronger, oil is going up with dollar strength as well as copper and lumber and other commodities. that might suggest that the global economy is stronger than what people think at the moment.
>> that is interesting. copper today at a 16-year high. how surprising is that given that there are concerns that the global economic growth perhaps is coming? it seems to be reflected in the treasury market .
>> i think so. but i think markets are forward looking and you think about the stock market peaking in late february, early march, and falling through april, it’s been rising, now, for the last 30 to 40 days. probably the decline in march and april suggested the slowdown we now see, little softer patch, but also the rally that we’ve had since late april is probably saying this summer we’ll pick up again and maybe commodity prices are starting to pick that up, as well.
>> in terms of the rally, do you think it ends here? has it priced in whatever growth you’re anticipating could be seen this summer sore do you think, in fact, the rally will continue?
>> i think there’s more room here yet. i think we’re going to take out the old cycle high we’ve put in there in early march, 1225, 1227 on the s&p, and probably go up and challenge or break through 1250 here this summer. i think we’ve gotten pessimistic and this market has been a chronic manic-depressive animal here much of the last year and we’re probably, i think, in a depressive mode and probably head back to a manic mode in the next several months.
>> in terms of interest rates, i want to tie in this part of the discussion because we’ve spent a love of time this week talking about interest rates falling below 4% for the treasury. as a strategist, what does this mean for you with the 10-year yield at 3.98% on a friday afternoon, how do you think differently about stocks given what you knew a week ago?
>> this is not really new. since the end of 2003, this is maybe the fifth time we’ve done this and we go back up to the middle 4’s and then go back down. in reality, we’ve done this every few months. i think what it means more than anything is that it seems to me that having a very low treasury rate is going to mean mortgage rates will come down a little bit again, too, and if anything, with a little bit of lag, it ought to pick up economic activity again. we might see better cap spending come back in at lower rates. we might see a rebirth of auto sales with lower finance rates and housing spurred more and in part because yields have fallen so i think rather than a bearish tone suggesting future weakness in the economy, i think it’s probably a bullish sign for stocks.
>> is this why you like small caps over large caps?
>> primarily, during this period of pullback in the market , particularly march and april, people have been recommending large caps will take leadership now. i think what i see is every time optimism returns to the stock market , it’s led by small cap stocks as well as cyclical stocks and i think we’re probably still headed higher and small caps are likely to lead for a while.
>> in terms of sectors. in the last 30 seconds, any particular sectors you’re focused on in the small cap arena?
>> i like mainly the cyclicals. and so the leader there, i think, is technology stocks. they’ve been doing well of late as the stock market is coming up. they’re probably still under-owned and probably the beneficiary of the strongest sector of the economy, that’s the business sector. they’re the ones with good balance sheets and strong profits and good cash flows and $3 of every $4 in the business sector will fall in the technology sector. i also like manufacturing stocks. i think they’ve been the most beat-up sector in the last few years primarily due to dollar strength and trade deficit losses. now that the dollar is weak and maybe trade flow has turned, i think it will continue to benefit the s&p industrials and basic materials stocks.
>> james paulsen, thanks for joining us.
>> thank you, ellen.
>> chief investment strategist at wells capital management. returning with “money & sports.”
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Listen Market briefing --- Ellen (slow)
Interview: Dutch State Secretary
report showed the weakest job creation since august 2003. also, as oil surged past $55 a barrel, raising concern a six-week rally in benchmark indexes may not be justified. the euro with its biggest weekly drop against the dollar since january after french and dutch voters rejected the european union constitution. the 12-nation currency dropped to an eight-month low two days ago on concern the treaty’s failure may slow economic integration in the region. joining us to discuss this and other issues in the netherlands is state secretary of environment, peter van geel, joining us from san francisco where he is in town for the united nations world environment day conference underway next week. welcome, mr. state secretary.
>> thank you.
>> what will happen, now that dutch voters have rejected the e.u. constitution?
>> well, in my country, the government was very surprised about the results. we thought they made a mistake in the polls. we should involve people more in the process of integration in the e.u. and that’s what we promised each other, we will involve people more in the process. people did not vote against europe. they thought they wanted to be more involved in the process of communication and that’s the lesson we learned from last week.
>> lesson learned and in terms of the reaction that investors are having with the euro at an eight-month low because because of concerns about economic growth in europe, do you think that’s justified?
>> no, i think that’s emotion and we always know that will happen. but at the end, the more basic physician are more important than these kinds of emotions. i think when we have this discussion, people see that the integration of europe on economic aspect is very profitable for everyone in europe so i think it’s only a matter of emotion in the short term, not in the long term.
>> certainly people look to economic data, they look at figures being lowered for economic growth in the euro zone. give us a sense, in your country, how strong is the economy right now?
>> well, i should admit that within europe, my country is not as strong as it should be. but our government took a lot of measures to strengthen the economy and i think the results will be presented next year. so we have a lot to do. we have come back from far but now we have a sound economic structure and also our basic figures related to the budget are very well so i think we have laid the bottom for the market for next year.
>> what is the key area where you expect improvement to be most noticeable?
>> we are very dependent on exports and within the e.u. and i think this will be strengthened by the development, also, in germany, so exporters have been the basis for our economic growth and also in the interior, the consumers will also strengthen the economy, especially as exports for our country are very important.% -
>> let’s also talk about the environment. that is what brings you to the united states, specifically to san francisco this weekend and next week. what do you hope to accomplish at the world environment day?
>> i’m here in san francisco because the dutch embassy organized three days’ conference on sustainable development and we want to show california here the dutch way of doing this. that’s the first thing we want to do. and also, we want to learn from the world environment day because it’s especially related to cities and we are densely populated in the netherlands and problems of developing cities related to the environment are very much in my interest so i want to learn, also, from the developments here in the united states.
>> you talk about the dutch way of doing things. what’s the key lesson, the most important thing you think the u.s. can learn from what you’re doing?
>> i missed your question, i’m sorry.
>> you were talking about the dutch way of doing things. when it comes to a sustainable society, which is the conference specifically you’re hosting, what do you think is the most important lesson the u.s. can learn from the netherlands about combating pollution, say?
>> well, a lot of problems are common. one of the things we introduced today to a lot of people in san francisco during the conference was useing fiscal instruments to improve the environment. we showed how we have changed our tax system, how we did it and what the results were from this field and i think it’s very promising element in combating the problems, environmental problems, especially introducing the people that the prince. pel is very important when the environment―the principle is important when the environment is incorporated in the price of the product, we have a real situation people can prove and that’s what we introduced in the conference these three days. >> thank you so much to take time to speak with us.
>> thanks.
>> our thanks to the dutch state secretary of the environment, peter van geel. rising oil prices and weaker-than-forecast jobs report was not good news for investors in the u.s. we’ll speak with james paulsen, chief investment strategist at wells capital management.
