The chief investment officer of HighMark Capital Management, David Goerz, says the investment group's views are generally not swayed by the recent volatility. "It has been just over a year since our last meaningful 'almost' correction," he says. Still, "Subprime troubles are not enough to undermine earnings or the bull market we have experienced, which is indeed all about earnings.
"We are a little over half way through earnings reporting season, and so far the good news is that it's not bad at all. We've observed that estimates moved quite a bit higher over the last month, but to get it right we must understand the supporting role that the global economy is playing," Goerz explains.
HighMark expects U.S. economic growth to accelerate in the second half of 2007, no cut in U.S. interest rates and just a 0.25 percent cut (to 5 percent) in 2008. Earnings growth is estimated to be 8.7 percent for 2007 vs. 15.8 percent in 2006. The overall return on equities is anticipated to be 12.9 percent this year, down from 15.8 percent last year.
Goerz's main themes include: continued share buybacks and the increased meaningfulness of earnings expectations to catch-up with the current-trend rate of growth. "We believe earnings estimates in the United States are at greater risk of being revised up than down," he explains.
Janet Levaux is the managing editor of Research; reach her at email@example.com.