Federated Investors' investment gurus say the economy is like a “coiled spring” waiting for Washington to do the right thing to set it free.
The stock market has surged, thanks to stimulus by the Federal Reserve, but the nation's economic output and hiring have lagged — well below levels coming out of past recessions, said Philip J. Orlando and R.J. Gallo at Federated's 2014 economic forecast event at the Duquesne Club, Downtown.
Federated's 2014 target for the S&P 500 is 2,100, compared with 1,775 on Thursday. And its target for Gross Domestic Product is 3.0 percent, they said.
Economic growth coming out of the Great Recession of 2007-08 should be about 4.5 percent, but instead is about half that level, said Orlando, chief market strategist at Downtown-based Federated, the nation's sixth-largest mutual fund company.
Experts have observed after the past 10 recessions that “the deeper the recession, the stronger the bounce,” he said.
Washington should do things like reduce taxes and entitlement spending, eliminate budget cuts known as “sequestration,” and spend more on crumbling infrastructure, such as roads and bridges. “If we did those things, we could get the economy going in the right direction,” Orlando said.
Even so, there are signs of improvement: a budget deal announced this week by Rep. Paul Ryan and Sen.Patty Murray that experts say is a step in the right direction — partially reversing the sequester but ignoring public investment — and last week's larger than expected jump in third-quarter GDP to 3.6 percent, revised upward from a previous estimate of 2.8 percent, as business inventories increased.
“We remain optimistic ... but that doesn't leave us without things to be concerned about,” Orlando said. The main concern is what investors should do with their money going forward.
Since the bottom of the recession, the Standard & Poor's 500 index, the broadest measure of the stock market and the one professional investors follow most closely, has risen 172 percent, so “the easy money has been made, but not all of the money has been made,” Orlando said.
“Stocks will continue to grind higher,” he said, mainly because the Federal Reserve's bond-buying stimulus program has worked, and will continue to do so even with the expected change in chairmanship from Ben Bernanke to Janet Yellen.
The Senate will vote on her confirmation next week. It's a transition, said Gallo, Federated's top fixed-income strategist, that “I don't think will be that stark.”
“Yellen is the one that convinced Bernanke to take the federal funds rate down to zero,” a result of its bond purchases, Gallo said, attributing that to his own discussions with people in Washington.
The Fed's strategy was to reduce interest rates and lift asset prices, which would filter down to rest of the economy, Orlando said.
And it should improve as Fed policy under Yellen remains supportive. Orlando sees the Fed starting to reduce bond purchases, known as tapering, in March.
“We're telling clients not be surprised by a pullback, a 5 to 10 percent correction” in stocks, which they should use as an opportunity to add to their positions, he said.
triblive.com
The stock market has surged, thanks to stimulus by the Federal Reserve, but the nation's economic output and hiring have lagged — well below levels coming out of past recessions, said Philip J. Orlando and R.J. Gallo at Federated's 2014 economic forecast event at the Duquesne Club, Downtown.
Federated's 2014 target for the S&P 500 is 2,100, compared with 1,775 on Thursday. And its target for Gross Domestic Product is 3.0 percent, they said.
Economic growth coming out of the Great Recession of 2007-08 should be about 4.5 percent, but instead is about half that level, said Orlando, chief market strategist at Downtown-based Federated, the nation's sixth-largest mutual fund company.
Experts have observed after the past 10 recessions that “the deeper the recession, the stronger the bounce,” he said.
Washington should do things like reduce taxes and entitlement spending, eliminate budget cuts known as “sequestration,” and spend more on crumbling infrastructure, such as roads and bridges. “If we did those things, we could get the economy going in the right direction,” Orlando said.
Even so, there are signs of improvement: a budget deal announced this week by Rep. Paul Ryan and Sen.Patty Murray that experts say is a step in the right direction — partially reversing the sequester but ignoring public investment — and last week's larger than expected jump in third-quarter GDP to 3.6 percent, revised upward from a previous estimate of 2.8 percent, as business inventories increased.
“We remain optimistic ... but that doesn't leave us without things to be concerned about,” Orlando said. The main concern is what investors should do with their money going forward.
Since the bottom of the recession, the Standard & Poor's 500 index, the broadest measure of the stock market and the one professional investors follow most closely, has risen 172 percent, so “the easy money has been made, but not all of the money has been made,” Orlando said.
“Stocks will continue to grind higher,” he said, mainly because the Federal Reserve's bond-buying stimulus program has worked, and will continue to do so even with the expected change in chairmanship from Ben Bernanke to Janet Yellen.
The Senate will vote on her confirmation next week. It's a transition, said Gallo, Federated's top fixed-income strategist, that “I don't think will be that stark.”
“Yellen is the one that convinced Bernanke to take the federal funds rate down to zero,” a result of its bond purchases, Gallo said, attributing that to his own discussions with people in Washington.
The Fed's strategy was to reduce interest rates and lift asset prices, which would filter down to rest of the economy, Orlando said.
And it should improve as Fed policy under Yellen remains supportive. Orlando sees the Fed starting to reduce bond purchases, known as tapering, in March.
“We're telling clients not be surprised by a pullback, a 5 to 10 percent correction” in stocks, which they should use as an opportunity to add to their positions, he said.
triblive.com
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