The recent plunge in gold prices indicate commodities are in the overbought region, and some kind of price pullback is likely to take place in near term, though there is some nervousness in the markets due to money-printing by global central banks, says Joe Quinlan, Chief Market Strategist at US Trust – Bank of America.
When questioned why he’s bullish on world economy, Joe said, barring Europe, the global economy has bottomed out. There’s no doubt that European problems will linger on, but they have been nearly offset by the US. Also, the emerging markets have started to recover. They have been easing monetary policies for the last 18 months, and the effects have started to kick in. Japan has started to recover and the world’s third largest economy will hopefully create some demand later. So essentially, growth should pick up by the second half of the year though we may see a pause in between. However, there could be more upswings in earnings, he observed.
Asked how 2013 is different from last year, when data started to become soft in the second quarter and continued to stay soft thereafter, Joe said retail and automobile sales are still strong this year while housing is kicking in. The big difference is that there’s no election in the US down the road. There are elections scheduled this year in Europe and it depends how Germany goes about it. But they are more of a concern for Europe than in the US, he noted.
Asked to comment on the US trade deficit with Europe, which has now run for three successive years, and has shot to about $100 billion, Joe said the deficit is a drain on US exports and squeeze earnings. Hopefully things will improve this year. But with a high unemployment rate and strong recession in the peripheral countries, exports to Europe may come under pressure again.
When pointing out that exports contribute only two percent to the US economy, Joe said if foreign affiliates are considered, Europe is US’s largest trading partner. And a slowdown in Europe hurts the sales of sectors like automobiles, information technology and pharmaceuticals, he argued.
Asked to comment on investment strategies, Joe said from a 3-to-5 year perspective, the US market looks good because of good core competencies and good corporate leadership. Also, an imminent energy revolution is likely to lower costs and improve margins for companies. Manufacturing is still robust and the population is largely young. If the government gets its immigration policy right, it will trigger a growth in consumption over the long term, Joe noted. The US economy is likely to grow at around 2.5-2.75 percent this year, he concluded.
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