Investment expert: Good year ahead
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Besides Arctic temperatures, tough commutes and endless shoveling, we can blame the Polar Vortex on something else: stock market volatility.
Jack Ablin, executive vice president and chief investment officer for BMO Private Bank in Chicago said that while the market likely was in a correction, it also showed a sign of what's happening in corporate America. Business closures, similar to snow days at school due to the rough winter, have taken a toll on business profits and likely have contributed to Monday's Dow dumping 326 points, the Highland Park resident said.
Jack Ablin, executive vice president and chief investment officer for BMO Private Bank in Chicago, will offer an economic outlook at 7:30 a.m. Thursday, Feb. 6, at the Wojcik Conference Center at Harper College in Palatine. Here are some issues he plans to address:
• The domestic U.S. economy appears to be accelerating. Notwithstanding the most recent setback in job growth, the labor market is tightening and wages are rising.
• The market is off to a rocky start, as investors have reduced their risk exposure. The S&P 500 should be able to advance this year as long as revenues and profits continue to grow.
• The Federal Reserve's quantitative easing program is winding down and investors are fully prepared for tapering. We expect "forward guidance" to take center stage along with higher interest rates and dollar strength.
• The U.S. housing market is improving steadily. Prices are higher, yet affordability remains attractive relative to history and versus foreign real estate.
• Foreign markets, both developed and emerging, are relatively cheaper than U.S. blue chips, although emerging markets are struggling with stagflation; slowing economies, higher inflation and monetary restraint.
• America's high corporate tax rates are creating distortions and impeding growth.
"The Polar Vortex has a lot to do with it," Ablin said. "You've had places like Minnesota that have been colder than Mars, and that effect has forced stores to close, businesses to close, and flights to be canceled. It keeps people out of doing their business and slows everything down."
The impact of the weather, the economy and investing, as well as a forecast for this year, is on tap Thursday when Ablin speaks at the 2014 Economic Update and Outlook Breakfast, at 7:30 a.m. at the Wojcik Conference Center at Harper College in Palatine.
Many businesses lost money each time the frigid cold temperatures closed down transportation and companies. So businesses showed a dip in profit. That translated to more volatility on the market, he said.
"With the Polar Vortex closing things down for a couple of days, people stayed home and profits aren't made. That's two or three days that could lead to a 10 percent drop in profit for the month," he said.
That has a ripple effect on investors' attitudes and those who don't want to be part of the market anymore, which results in a sell-off of stock. But such a correction isn't a reason to sell off, he said.
He also plans to look at other areas of the economy, including the job market. The December unemployment rate nationwide was 6.7 percent and new figures for January are expected on Friday, he said.
"Companies are having a difficult time finding qualified workers, so there's a tightness in the market. They likely will offer more education or training to get the people they want," he said.
He sees fewer jobs, but those jobs likely could provide higher wages.
Another factor impacting the economy is the housing market. Ablin said that prices have bounced back about 20 percent, but they are still at least 20 percent lower than they were before the crash. If we take the housing prices and mix them with household income and current mortgage rates, then consumers should be seeing one of the most affordable housing markets in a generation, he said.
Still, consumers are diving into the housing market, he said.
"They could have been burned or may be reluctant to make a commitment," he said. "People often look in the rear view mirror to predict the future."
He believes the economy will continue to improve, and therefore, the prices of homes should remain steady this year.
"They're also facing changes in the mortgage industry with tighter requirements, so the spigot is not as open as it once was," Ablin said. "Still we're in better shape now than in a long time, and prices should remain steady this year."
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