Stocks Are Worth Being in Right Now, Amoroso Says

Anastasia, you sound like someone who would be very comfortable being a bull in this equity market right now. We’re past 5200. Can you keep buying? Yes, I can. And obviously the risk reward was better when we were closer to 5000 and that’s why we were saying that we should be adding to allocations if you’re underweight relative to strategic ones. But still if I look ahead and if I look at the current multiple, which I think can be sustained as long as this economic environment is sustained and if I apply that to 200 and $78 in S&P 500 earnings for next year, that gets me to an implied price target of 5400 on the S and Pi Think that’s the base case scenario. And so I do think stocks are worth being in and we’re staying for. And you know, maybe the upside to 5400 is not all that great, but that’s for the S&P. And I think you can find pockets of opportunity within the market that should be able to outperform. Anastasia, it’s Jim Bianco. I want to ask you about the bond market. We started the year at the 10 year yield at around 3.9%. We got as high as 4.7% a couple of weeks ago and we’re around 4 1/2 now. Is that uptrend going to continue do you think or do you think we’ve kind of finding a high yield for the year? Yeah, I think thanks for the question, Jim. And I think for now we have sufficiently priced in the new reality which is growth that is the remaining pretty robust which is inflation expectations that have picked up and of course the central bank policy which apparently may not have much in terms of rate cuts this year. So I think Jim DAP moved to 4.7 that’s sufficiently reflected that. And when we look at the implied fair value on a 10 year based on some of the some of the models out there relative to where the 10 there is today, it is trading above some of those fair value models. So I do actually think that that that’s what gives me more optimism on the equity market is if the 10 year can pause around these current levels then that’s less drag on valuations for equities. Do you think that the Fed is going to move this year and would that change your outlook a lot if they were to move? Look, I do think the Fed will likely move once, maybe twice this year, and obviously that has to be later in the year. Look, the Fed, I think, realizes that they solve what they could solve, which is slowing down demand in the interest rate sensitive parts of the economy. What the Fed cannot solve is the supply of Labor and the supply of housing. And when you look at inflation today, what’s really making it sticky, it’s the fact that wages are still rising and the fact that there’s a shortage of workers. And I’m in Miami this week and apparently the unemployment rate in Miami is 1.9%. So talk about a lot of demand and lack of lack of Labor. the Fed can’t really solve that. You know, the Fed can’t also solve the shortage of housing and the under building that we’ve had in the economy of housing over the last 10 years. They could slow the demand and they have done that, but they can’t quickly turn on the supply spigot. So I think having this realization is the reason why the Fed will likely cut interest rates because they’ve done a lot and certain parts of the economy, certain pockets are certainly feeling the strain, which is commercial real estate, especially in office. And of course that’s relates to the regional banks as well. So I do think, you know if inflation continues to be somewhere in the 2 to 3% range as we move through the year, they should cut rates. Anastasia, you’ve been constructive for a while. You’ve had a bias to buy. I remember you called the pull back in April a better entry point. Clearly based on the last few weeks you’ve been right. Could you tell us how independent your market call is from your Fed call? It’s fairly independent, Jonathan. When we wrote the outlook for this year, we did expect rate cuts. But at the same time we said what if the Fed doesn’t cut interest rates And the conclusion was it is still equity market that’s worth staying in and worth being in. And the reason we said that was because of the growth resilience that we were expecting. You know, there’s this notion of the US exceptionalism, of the US economic exceptionalism and it is so true because this economy is not all that interest rate sensitive. And in fact, when you look at the consumer, what we pay in terms of mortgage has not actually reset higher because only 5% of mortgages are floating rate. And yet the amount of income that we earned by parking the cash that we had in a money market account is quite significant. It’s a significant pickup. So This is why, you know, we thought that the consumer can handle 5% interest rates as they have supporting the economy. And that’s why, even if the Fed doesn’t cut rates, the economic backdrop should support equity valuations and equity earnings, of course.