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Bank of America Corporation Message Board

  • bluecheese4u bluecheese4u Jan 4, 2008 6:28 AM Flag

    Tobias Levkovich ~ financials could come back to haunt investors should these groups rebound

    Tobias Levkovich ~ financials could come back to haunt investors should these groups rebound

    Jobs report may guide Fed rate cut plans

    January 4, 2008

    The U.S. jobs report today could help determine just how aggressive the Federal Reserve Board might be when it continues, as is widely expected, to lower interest rates.

    The Fed has cut the federal funds rate at three consecutive meetings and more are expected to come with its next meeting scheduled for the end of the month.

    The federal funds rate currently stands at 4.25 per cent, which is down from 5.25 per cent in August, and with the yield on two-year U.S. Treasuries at 2.81 per cent, bond investors anticipate more cuts to come. Many are looking for a full-percentage-point reduction or more over the next few meetings to help bolster the flagging economy and troubled financial markets.

    The economy is forecast to have created 70,000 new jobs in December, down from 94,000 in November, according to a survey of economists by Bloomberg.

    "The expected moderate gain in employment should lift the jobless rate a notch to 4.8 per cent, the highest level since July, 2006, and up from a cyclical low of 4.4 per cent earlier this year," said Sal Guatieri, a senior economist with BMO Nesbitt Burns Inc.

    "The payrolls report will have a significant impact on the Fed decision at the end of the month," Mr. Guatieri said. "A surprising decline could result in a 50-basis-point cut." (A basis point is 1/100th of a percentage point.)

    Economists are looking for sharp job declines in troubled sectors such as manufacturing, construction and more layoffs in the financial sector.

    But if central banks continue to lower interest rates during the first half of the year, that could provide support to interest-sensitive stocks and industries that benefit from the weak U.S. dollar, commodities such as gold and oil, and U.S. exporters.

    Among the Citigroup Inc.'s 58 "top picks" for 2008 are AbitibiBowater Inc., Altria Group Inc., Anadarko Petroleum Corp., Barrick Gold Corp., Burger King Holdings Inc., ConAgra Foods Inc., Halliburton Inc., Intel Corp., McDonald's Corp., McGraw-Hill Inc., Nike Inc., Raytheon Corp., Saks Inc., Time Warner Telecom Inc. and Weyerhaeuser Co.

    And Tobias Levkovich, the chief U.S. equity strategist for Citigroup Global Capital Markets Inc., in a report to clients cautions that industrials, materials and energy groups may not prove very rewarding in 2008 as overseas growth slows. "Moreover, the substantive underweight positions [held by investors] in consumer discretionary and financials could come back to haunt investors should these groups rebound (as we deem likely) in 2008," he said.

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