U.S. stocks aren't likely to see price declines similar to those during the financial crisis of 2008, said Larry Kantor, head of research for
Barclays Capital.
Markets are vulnerable when households and corporations are overconfident, valuations are stretched, and cyclical sectors are booming, and “none of those conditions hold now,” said Kantor during a presentation of the firm's Global Outlook report released today.
Barclays advises investors to maintain a “neutral risk.”
In 2008, when Lehman Brothers Holdings Inc. collapsed, about $10 trillion was erased from share values from June 2008 to March 2009, according to the Bloomberg U.S. Exchange Market Capitalization Index. The bank bought Lehman's North American business during the 2008 credit crisis.
Kantor said
Barclays expects an improvement in economic growth in the third quarter. Opportunities for investors are limited because “we aren't turning the corner on the big problems” such as Greece and the U.S. debt.
Barclays Capital is the investment banking unit of London-based
Barclays Plc.
The problems in Greece will linger, and the U.S. debt ceiling will be raised, said Kantor. “It will not be raised as much as the administration wants,” he said.
Kantor said he expects “tactical opportunities” as a result of the recent market correction. The Dow Jones Industrial Average has declined 3.4 percent since May 23. If the market fell 15 percent, “we'd be looking to buy,” Kantor said.
A U.S. government shutdown won't result in a default on Treasury debt, said Rajiv Setia,
Barclays' co-head of U.S. Interest Rate Strategy. “The Treasury has money to buy some time,” since it owns roughly $600 billion in assets, a portion of which ‘in theory' can be liquidated to come up with cash, said Setia.
Decent Rally
There's a “chance for a decent rally” in financials in the third quarter, said Barry Knapp, head of Barclays' U.S. Equity Strategy, who cautioned against stocks leveraged to the U.S. economy and consumer.
“The credit issues are largely behind us,” said Knapp. “The U.S. has done a better job of recapitalizing than Japan and bank lending is up 1 percent so far in the second quarter” after falling in the previous quarter.
Concerns about economic growth worldwide will make it difficult for the Standard & Poor's 500 Index to break out of the 1250 to 1350 range until later in the year, said Knapp, when back-to-school sales may have a positive effect on the market.
“If you can put two decent quarters together that's a catalyst for a late rally to get to our yearend price target of 1450,” he said. “If I had to have a price target for the end of the third quarter, it would be 1350.”
In fixed income, Barclays' credit group said investors may want to “put some risk on, especially in the high-yield sector,” said Kantor. “They like financials right now.”
--Bloomberg News--
