“It’s pretty much the consensus view that we’re going to have a pretty lackluster recovery,” said Zemsky, speaking at a press briefing today in New York City. ING Investment Management forecasts GDP growth in 2010 of slightly less than 3%—which is “tepid” growth after an economic downturn of such magnitude.
As far as the financial markets go, Zemsky is optimistic for equities and expects to see the S&P 500 rise to the 1,250 to 1,275 range by the end of next year. “Our view is that the consensus is too pessimistic,” Zemsky said.
When the Federal Reserve lowered interest rates, the safe investment of T-bills became not as cost-effective, thereby leading people to riskier investments. “That fact that certainty is so expensive will drive people to the equity market,” he said.
ING Investment Management is overweight equities, particularly favoring emerging markets and sectors such as commodities, industrials, financials, and technology. Uri Landesman, head of global growth at ING Investment Management, said technology is attractive because many technology companies missed an upgrade cycle to their products and therefore have not fully appreciated. Also, as the holidays approach, he expects consumer spending to do well.
On the other hand, ING Investment Management is underweight in defensive sectors, but take a more neutral stance on health care. Although the markets are watching anxiously to see what will happen with health care in Washington, Landesman said investors shouldn’t ignore the sector altogether.
Despite the dramatic recovery in the stock market, consumers remain uncertain, Landesman said. Unemployment will likely peak soon, but will not go down to previous levels for a few years, he said.
While the savings rate has gone up as wealth has gone down, ING disagrees with some predictions that it will reach high numbers such as 8%. The savings rate is currently at 3.4%, and will likely not increase dramatically, as the majority of people are living day to day, Zemsky said.
In the post-Lehman Brothers environment, Zemksy noted two trends: “a good old-fashioned banking panic,” resulting in frozen lending, and “good old-fashioned debt deflation” after consumers over-borrowed for years. The first is a short-term problem that has been aided by federal intervention. The latter will take years to get out of.
While the recovery will be a long road, the next four quarters do look positive because of factors such as pent-up consumer demand and the federal stimulus, Zemksy said.