Raymond James Super Analyst Jeff Saut sees the market shifting its focus from DC to Main Street as a mixed bag for stocks. While it's good to have the debt bickering in our rear view, any market rally may be muted. "After the reality sets back in (the markets) are going to re-focus on the economy and the economy is still somewhat sketchy in here," he told me and Nesto.
As if on Saut's cue, yet another sketchy piece of data came in this morning literally during our conversation with the ISM posting 50.9, well below estimates near 55. The ISM data comes on the heels of 0.8% GDP growth in the first half and an earnings season that's producing strong headline numbers but fairly soft guidance.
Perhaps as a result of the weak data markets are staging a significant reversal today. With stocks having spent exactly 30 minutes in the green prior to the 10AM release of ISM this was arguably the worst relief rally in history.
Saut isn't concerned about the day's action nor dissuaded from his bullish inclination. Brace yourselves for this next one, bears: Saut sees "a GDP pick-up in the back half of this quarter" as a precursor to what he says will be flat out strong growth next year.
Encouragingly, Saut thinks cutbacks in jobs related to government spending will be offset by improvements in the automotive sector. People in Detroit are telling him that "the great labor arbitrage of building plants in China and shipping parts back here is over." In other words, it's making an increasing amount of sense to build American parts here versus China due to shipping, labor, and insurance costs involved in going over seas. This adds up to American jobs which is better news than anything that could happen in stocks.
As for a potential downgrade of U.S. debt, Saut believes America losing its AAA status is fait accompli, largely as a result of the ratings crackdown in reaction to the financial crisis which revealed the laughable nature of the current system. Like many, Saut doesn't much care about a downgrade one way or the other. Canada, Japan and Australia all lost their AAA ratings without resulting disaster. And in the case of Australia and Canada, their ratings were raised after a few years of fiscal austerity.
In Saut's, mind the best thing to come from the protracted faux crisis is that it pushed the populace to a tipping point in regards to our politicians. While he doesn't "entirely embrace" the Tea Party, they have surfaced some of the political corruption that has existed for a pretty long while". It's Saut's opinion/hope that this will lead to more business-minded elected officials. His wish is for "practical people with practical solutions, the way you'd run a business."
From Saut's mouth to the voters ears.