In the spring of 2009, when many traders and investors were terrified, investment manager Jeff Matthews made a bold and bullish call here.
Two years later, Matthews is much less optimistic about both the economy and the market.
"It's a greater period of risk vs. reward because we've got rising costs: This thing called inflation," Matthews tells Henry in the accompanying clip. "Every company is talking about risings costs, not just with oil."
With earnings season in full swing, Matthews cites a number of companies which have cited rising input cost as hurting profit margins -- or threatening to in the coming months.
Ford, for example, posted blockbuster quarterly results Tuesday morning but also forecast $4 billion in higher expenses in the coming year. That's why the stock barely budged yesterday despite "everyone being all excited" about the company's stellar first-quarter results, Matthews says.
"You're going to see [that] across broad range of companies," he says, citing Procter & Gamble and Kimberly-Clark as other recent examples.
Meanwhile, the consumer is being slammed by rising gasoline prices, which are up 37% year to date and $1.00 per gallon in the past 12 months. Every 80-cent increase in prices at the pump costs U.S. consumers $100 billion, which helps explain why consumer confidence and Obama's poll numbers are falling despite the stock market heading into Wednesday's session at a new cycle high, Matthews says.
Although many investors "have to show they're invested" and it's human nature to "chase higher prices," Matthews says the broad-based rally is in its final throes.
"We're at the point you've got to be stock selective," he says. "We're into more of an inflationary, not all boats rising, late-cycle type market [and] face rising rates when Fed finally comes off the QE2 gas pedal."
Of course, the market today will be fixated on the FOMC statement and Ben Bernanke's first-ever press conference for any clues when the Fed's proverbial foot will start to lift. See Dan Gross' preview here and stay tuned for additional coverage later today.
Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com
24 comments