UBS’ Golub Says Analysts ‘Severely Underestimated’ U.S. Economy: IMCA Conference

Chief equity strategist says companies ‘better at managing profits that at any time in my career’

Apple reported a Apple reported a "ripping beat" of analyst expectations for the first quarter, said Golub. (Photo: AP)

Jonathan Golub, U.S. equities strategist with UBS, sat with AdvisorOne on at IMCA’s annual conference in National Harbor, Md., on Tuesday for a frank discussion of the market outlook, earnings season and investing cliches. He certainly knows of what he speaks, having gone through it before as chief investment strategist and senior managing director for Bear Stearns. Before that he was U.S. equity strategist for J.P. Morgan Funds.

“I like stocks now,” Golub said. “You have your traditional bull and bear advocates, but I’m pragmatic. Yes, the economy is growing slowly, but it’s not bad.”

Apple (AAPL), he said, reported a “ripping beat” (meaning it beat analysts’ estimates). Companies on the whole are beating estimates by 6% or 7%, which is, he says, huge.

“They are better at managing profits now that at any other time that I’ve seen in my career,” Golub said. “The market will never be perfect and you always start with the assumption that something is broken; the question is will there be an overreaction or underreaction.”

He admitted the situation in Europe is concerning, especially now with the election in France. It seemed for a while that France and Germany were on the same page, but now France looks to be rejecting austerity measures.

“Also, you have the issues with the Spanish bond market. We’ll be dealing with this for years. It will initially cause a spike in concern, but then policymakers will take action to help it in the short term. The consequences of not acting are just too great. But when it comes to the long term, that’s another matter.”

He believes the country is “facing a fiscal cliff at the end of the year.” The Bush tax cuts are set to expire, and there are other issues that must be dealt with. Right now the economy is growing at around 2.5%, he said. If you take out the Bush tax cuts and the other issues, the 2.5% quickly evaporates.

“I think there will be a fight to the death on these issues and the markets will get spooked, but when I talk to mutual fund and hedge fund managers, it’s still too far down the road,” Golub said. “They’re not investing defensively for something that will most likely not occur at least until the next inauguration in 2013.”

The market is softening, and that is a concern, but the corporate earnings “beats” are coming in 5% better than analyst expectations, which mean Wall Street analysts severely underestimated the strength of the economy, he explained.

“I don’t have a bull market bias, but what I’m currently seeing makes me a buyer. We’re not seeing a repeat of 2011, where it started strong and fell off half way through the year. Last year, we had the Arab Spring, which was driven by higher commodity and food prices which drove civil unrest. We also had the natural disaster in Japan, something that, God help us, we have not seen again this year.”

Directly addressing S&P Capital IQ's Sam Stovall’s session form earlier in the day, Golub said that when it comes to the “‘sell in May and go away’ cliche, if you can capture an investment theme in a rhyme, that’s a theme I want to short.”

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