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Published on Sep 9, 2016
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economic good times will roll on through the fall and investors should
buy any serious market dips, especially the banks, said Talley Leger,
investment strategist at OppenheimerFunds. 'Welcome to the Great
Moderation 2.0,' said Leger. 'That's what we've dubbed the extremely
favorable mix of conditions that characterize the current environment:
supportive monetary policy, low interest rates, subdued inflation, and
an economy that shows no signs of overheating.' In his view, this equity
market rally may be one of the most unloved of our time. Even Brexit
and the associated political instability in the UK - the fifth largest
economy of the world - wasn't enough to derail the ongoing economic
expansion. Leger said the U.S. has three factors are working in its
favor: limited exposure to the UK at just 3.1% of total trade, consumers
are well supported with average hourly earnings growth of 2.6% year
over year and the manufacturing sector is recovering as evidenced by the
ISM Manufacturing PMI at 52.6. Leger said the financial sector is
currently the most promising because it has been unloved and under-owned
throughout the cycle. He points out that U.S. commercial banks have
pumped out record profits as reported by the FDIC. As to the future of
interest rates, Leger said he does not have a specific or formal target
for the yield on the 10-year Treasury. Still, he expects rates to stay
subdued for the foreseeable future 'as long as the Fed has learned this
valuable lesson and keeps rates low.' 'Our view is that this could
potentially be the longest business cycle on record,' said Leger. 'It's
already over seven years long. That compares to the 1990's which was
over ten years.' 'If we get that great Moderation 2.0 we think the
upside for stocks is good right here,' said Leger.
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