The stock market and the Federal Reserve have been acting like partners in a ”failing marriage” following Tuesday’s 25-basis-point interest rate cut, said James Grant, founder and editor of Grant’s Interest Rate Observer.
Jim O’Shaughnessy, chairman and chief executive of O’Shaughnessy Asset Management in Stamford, Connecticut, said the sell-off in U.S. financial stocks may have run its course, and that the sector is “looking attractive again.”
Bill Gross, chief investment officer for PIMCO, said the recent push higher in the stock market likely reflects a decline in real interest rates, and that forecasts for double-digit earnings growth next year are not realistic.
Margaret Patel, senior portfolio manager and a managing director at Evergreen Investments in Boston, said investors can expect “a good house-cleaning” when financial institutions release fourth-quarter earnings, as the housing and subprime crisis continues to take its toll on the sector.
Deborah Cunningham, who manages Federated Investors’ U.S. and euro money market funds, said markets will have to wait until some six to eight weeks into the new year before European banks release their latest earnings, which could reveal some new fallout from exposure to the global credit crunch. Unlike the quarterly reporting schedule in the United States, many European banks report every six months.
Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey, said he interpreted recent remarks by top Federal Reserve officials to mean the central bank had elevated the importance of the equities market in its decision-making during the current period of “crisis management” since the major credit crunch that hit in August.
Mary Miller, director of fixed income at T. Rowe Price Group Inc., said the worst of the housing crisis is not over and will likely last until the end of 2008.
Paul Hickey, co-founder of Bespoke Investment Group LLC, said he sees a buying opportunity in stocks despite rising bond yields. “We wouldn’t say this is a really great opportunity for bonds here,” he said at the Reuters Investment Outlook Summit.
Wall Street strategist Barry Ritholtz said the U.S. economy is in a gradual slowdown, and that jobs recovery is the worst since World War II. “I called this the slow-motion slowdown,” Ritholtz, chief market strategist at Ritholtz Research & Analytics, told the Reuters Investment Outlook 2007 summit. He said chief executives have been reluctant to make investments and have limited their hiring and purchasing.
BNP Paribas Senior Bond Strategist Richard Gilhooly said the Federal Reserve could cut interest rates in the near term if the housing market remains soft. “We think, effectively, over the next three to six months the Fed will have a window to lower rates if they need to,” he told the Reuters Investment Outlook Summit in New York. The U.S. central bank has kept its benchmark overnight lending rate at 5.25 percent since June 2006. Financial markets currently show little chance of a rate cut between now and year-end. As recently as late April, rate futures priced in between one and two quarter-point Fed eases.