As a realist Steve Wood has a hard time getting giddy about the near term prospects for global stock markets. The Chief Market Strategist for Russell Investments strikes a balance somewhere between "extremely guarded optimism" and "damning with faint praise" when telling me that he "likes equities versus fixed income... kind of a no-brainer in terms of valuation."
It's not that Wood sees an equity tragedy on the horizon. "A worst-case global growth recession is off the table," as far as he's concerned. What keeps him less than sanguine is the absence of any particularly exciting recovery taking place. Blaming the Japanese tsunami for the Q2 soft-patch doesn't mean the economy is a coiled spring of growth. Wood is looking for a final growth figure of 2011 of around 2.5%, then expanding to 3.3% or a tick higher next year.
Despite year-end targets for the major indexes of right around exactly where we are now, Wood says investors can find value if they're willing to "get into the weeds" and do a little research of their own. In a burst of relative optimism he notes that 91% of Americans are employed and their balance sheets stabilized after the crisis. He quite correctly observes that the U.S. consumer will simply not be denied and an improved balance sheet means the ability to increase spending again.
Under normal historic circumstances a growth rate with a 3-handle wouldn't be cause to buy stocks. However in this case corporate America is "lean and mean" with even better balance sheets than the consumer and the ability to increase profits even in a low-growth environment.
With a strong consumer and efficient corporate operators, Wood is looking at consumer discretionary names as stocks residing in the aforementioned weeds. As a market strategist Wood doesn't breakout (pun intended) specific names. So I took the liberty of doing so for him by mentioning yet again that I'm long McDonalds (MCD), Disney (DIS), and Ford (F).
Steve didn't react in horror, suggesting he either has a very solid poker face or he thinks I could do worse. Those looking for more names in the consumer discretionary space could start by taking a look at the discretionary sector SPDR (XLY) ETF, for a list of candidates.