Today's weak jobs report notwithstanding, the economy has moved past last month's “soft patch” and there are reasons to be bullish on equities, according to Brian Gendreau, market strategist at Cetera Financial Group Inc., which has $82 billion under advisement.
“We're coming out of a period in which the market went down for six weeks because of concerns about a soft patch,” he said. “And there was a soft patch related to the tsunami in Japan, $4 gas, and general supply getting ahead of demand.”
While Mr. Gendreau doesn't believe high gas prices represent a significant actual impact on the economy, he said they have a major effect on consumer sentiment. So, when gas prices started to fall over the past few weeks it was seen as a good sign for the economy and the markets.
“The economy won't grow as fast as anyone would like it to, but at least it's growing,” he said. “Corporate balance sheets are very strong, stocks are arguably not expensive and wage growth is zilch because nobody is asking for a raise right now.”
In terms of Europe, where serious sovereign-debt issues linger, he said, “It's a bit of a puzzle.”
“You'd think the euro would be weak, but it's not,” Mr. Gendreau said. “France and Germany are still strong economies, and most of problems are so far confined to the peripheral economies.”
The weakened U.S. dollar, however, does present opportunities for certain sectors, Mr. Gendreau added.
“More than half of the revenues from the Dow 30 stocks come from abroad, and a weak dollar will help those exporters,” he said.
With that in mind, Mr. Gendreau favors the materials, energy and technology sectors as the most globalized areas.
“I don't think this is a time to be in defensive sectors like health care, utilities, telecom and consumer staples,” he said. “They are not going to benefit from a weak dollar.”
In general, he advises overweighting stocks relative to bonds.
In a portfolio set for 60% stocks, Mr. Gendreau said he would bump that allocation up to 65% or 70%.
“I'm not saying you should back the truck up and just load up on stocks,” he said. “But I do think the outlook is positive.”
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