Markets murky
NEW YORK – While Wall Street is still debating which economies abroad might join the U.S. in a slowdown, investors shouldn’t wait for an answer.
Readings from Spain to Japan to still-emerging economies like China and India point to economic headwinds of varying strength, but observers say it’s too early to count out some of the star performers of the international markets of the past four years. At the same time, with the prospects for the U.S. economy still murky, it’s likely prudent for many investors to rebalance their holdings rather than make an ill-conceived shift that leaves too much exposure to one economy.
Jeffrey Mortimer, chief investment officer at Charles Schwab Investment Management in San Francisco, likens the U.S. economy to the front of a train that started down a hill when the rest of the train – the remainder of the world – stayed on level ground.
“The question is, does the U.S. pull the rest of the world (down) that hill? I think that in fact it may be playing out that way, that the world will now slow. But what the U.S. does is still a wild card,” he said.
Steve Tyson, chief investment officer at MFC Global Investment Management in London, has concerns about the U.S. economy but says Wall Street, having been in the doldrums longer than some other markets, could be poised for a rally – even if areas like consumer spending remain weak.
“The economic data coming out of the States recently is not as bad as the data we’re seeing in Europe or the slowing in Asia. However, I think this is a false dawn in the U.S. economy and I think the U.S., like Europe, is going to be mired in economic problems for the next year or two whilst we overcome what I call the consumer hangover,” he said.
Tyson predicts that the recent drop in oil prices and other commodities will help curb inflation in many economies and could make investors more willing to jump into markets like the U.S. that have been hit by economic worries.
“With what’s happening with commodities rolling over, I just can’t see where inflation is going to come from in the short term,” he said. “It’s just a reasonable time to be putting money back in.”
Some of those who forecast an acceleration of the U.S. economy and a resulting turn higher by U.S. stocks point to the dollar, which has been showing signs of life. The stronger greenback has made the currency more attractive to foreign investors and helped lower oil prices, and in turn, prices at the gas pump. The easing in the cost of everything from fuel to food could help consumers and businesses alike.
“Falling oil prices are an instant, ongoing rebate check into the pockets of consumers,” said Rafael Resendes, portfolio manager of the Toreador Large Cap Core Equity Fund in Fresno, Calif. He sees a more robust dollar as a boon for the U.S., even if it makes some goods made in the U.S. more expensive for foreign buyers.
“A strong and rising dollar tends to be good for the U.S. stock market,” he said. If the dollar continues to flex some muscle it could drive down the cost of raw materials and other goods for U.S. companies, which could in turn boost profit margins.