ST. PETERSBURG, Fla. The U.S. equity market hasn't yet run out of steam and continues to offer the best investment opportunities, says Milton Ezrati, senior economist and market strategist at Lord Abbett.
"There's still value in this market," he told a room full of branch managers and banking executives gathered at the Raymond James Financial Institutions Division Symposium here on Tuesday.
While he conceded that the market is not a "drop-dead gorgeous" as it used to be, it doesn't mean it's not attractive, he said.
Ezrati pointed to valuations as a reason for his upbeat outlook, saying that the market's price-earnings ratio is about where it's averaged for the last 30 years. In addition, he anticipates earnings growth of 5% to 6%, despite the slow-growing economy. That, combined with the market's 2% dividend yield, translate into a respectable 7% to 8% return on equity, which "ain't bad relative to bonds," Ezrati said.
The 2% dividend yield is even more attractive relative to cash, which can earn a measly 25 basis points if invested by the very best advisors. "That's 175 basis points above cash," Ezrati noted.
Indeed, he said, there's enough value in the market to withstand "some pretty hefty increases in short-term rates," unless the economy slides into recession, which he said is highly unlikely.
Ezrati cited a number of reasons why a U.S. recession is "not going to happen," including an improving real estate market. "The U.S. economy has never gone into recession when real estate is improving, even if it's sluggish," he said.
Other reasons the economy is unlikely to go into recession include improving state and local governments, which for the first time are starting to see net revenues increase, and strengthened U.S. households, which have shed $1 trillion in debt. In addition, corporations are flush with cash, and recession occurs only when corporate America is squeezed and has to cut back, Ezrati said.
- A Bubble-Era Product, Thought Extinct, Has Reemerged in California
- Microsoft Sells Record $10.8 Billion of Bonds
- 11 Tips on Long-Term Care as Rates Rise
Register or login for access to this item and much more
All Bank Investment Consultant content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access