ISI economy comments:
Good morning. As you know, ED and NANCY are still looking for 1.5-2.0% GDP growth in the 2Q and 4-5% GDP growth in the second half, TOM thinks that we will see 50 bps of easing in June (but if not then, probably not for the remainder of the year), and JASON believes earnings will be up about 10% and the market will end the year up around 8% (950), although between now and the end of the year, we may see an upside breakout. Given that framework, here's where our analysts see some opportunities - all of which can be found in today's reports:
LARGE CAPS: In low nominal environments, large companies have a distinct advantage over small companies. Essentially, large companies can gain share. And as JASON points out in the Portfolio Strategy Report this morning, it may already be happening. S&P 500 Earnings are up 13.1% Y/Y, while the economy as a whole (on a nominal basis) only grew at 3.7%.
SHORT TERM TRADING: Erik generally runs the Valu-Trac model to screen for companies that look cheap on a long-term basis. This morning, he screens for companies that may be currently mis-priced and may provide opportunities over the short-term (4 months or so). He has a list of 72 companies on the cover of his report this morning. Take a look if you get a chance for the full details.
UTILITIES and ALTERNATIVE ENERGY COMPANIES: The energy bill now moves to the Senate, and ANDY has a comprehensive analysis of the provisions that should be of most interest to investors in the Morning Political Report this morning. Look for PUHCA to be repealed (good for utility consolidation), tax incentives to encourage conservation, reliability and production (good for aec's) and more lax rules on energy transmission (good for independent power producers). ANDY thinks there is over a 50/50 chance an energy bill becomes law this year.
BONDS? Seems contradictory to our call - ED and NANCY have bond yields moving higher, but we can't escape our own BOND MANAGERS SURVEY - which suggests that odds of us being wrong on this are higher than usual. Institutional Bond Managers are still short Treasury duration, which from a contrarian viewpoint, argues for lower yields. See pg 3 of the Daily Econ Report for details.
