A general consensus that the recession is beginning to dissipate is prompting optimism in the financial community tempered by concerns over a continuing high rate of joblessness, a still-sluggish housing market, and a wary investing public that has less confidence in financial institutions.
Meanwhile, the emergence of a strong global focus on energy conservation and carbon reduction will generate significant demand for “green” products and services and create opportunities that the U.S. business sector would be smart to seize upon.
These were among key messages delivered by experts who addressed the Greater Baltimore Committee’s Economic Outlook Conference on October 20. More than 300 GBC members and guests attended the breakfast event at the Baltimore Marriott Inner Harbor at Camden Yards hotel.
Equity markets are beginning to stabilize and the capital-raising process is “reawakening,” said John Jacobs, executive vice president of NASDAQ OMX Group, Inc. After two years virtually without any initial public offerings, IPOs are “starting to stir.”
Jacobs noted the Dow Jones average recently breaking 10,000 is significant because it reflects where the Dow was before last year’s massive crash. He added that it could be difficult to hold onto all of the most recent gains, citing continuing joblessness, and home sale data that is increasing, but remains sluggish. Positive signals are increasing consumer confidence, along with emerging IPOs.
Trade will play a key role in the U.S. recovery, Jacobs predicted. “Trade helped bring us out of the last two recessions and trade will, and can do so this time, especially with the current weak dollar.”
This year’s robust rally is similar to initial rallies from past major bear markets, but has some “perplexing” elements to it, said Richard Cripps, chief investment officer for EquityCompass Strategies, a subsidiary of Stifel Financial Corporation.
We’re in a “new era of investing,” said Cripps. “The emotional scars of 2008 are going to hang in the air for some time to come, and they are there right now.”
There is less confidence in major financial institutions both in the U.S. and abroad, all of which is going to take time “to unwind and to try to get things back to normal,” Cripps said. For investors, “there’s a higher risk premium in owning stock,” he said.
Cripps noted that, even as stock prices have rallied in 2009, equity markets have nevertheless experienced $10 billion in net withdrawals by investors from domestic equities this year. “This is astounding. Who is buying?” he asked. Not foreign investors who, because of a weakening U.S. dollar, currently own their lowest portion of domestic equities since 1978, he said.
Both Cripps and Jacobs warned of a potential for a market correction soon, but expect markets to stabilize and to position themselves next year for longer-term, more gradual growth.
Bracken Hendricks, a senior fellow at the Center for American Progress, a Washington, D.C. think tank, noted that substantial business opportunities exist for U.S. companies willing to apply “old-economy” capital and resources to an emerging worldwide demand for equipment and other “green” products and services related to renewable energy, conservation, and abatement of global warming.
“This is a huge opportunity to improve our global competitiveness,” Hendricks said. “There’s a lot of steel in a wind tower…a lot of metal and fabrication and sheet metal work in building a concentrated solar farm.” The “green” industry requires a whole set of manufactured products and services that, if not provided in U.S. companies, will be provided by companies elsewhere, he said.
A $150 billion by U.S. businesses in renewable energy and other “green” industries would create 1.7 million jobs, Hendricks noted.
Presenter’s screen presentations:
Richard E. Cripps, Chief Investment Officer, Stifel, Nicolaus & Company, Incorporated
Bracken Hendricks, Senior Fellow, Center for American Progress, Part 1 and Part 2
John Jacobs, Executive Vice President, NASDAQ OMX Group, Inc.