Mark Luschini, chief investment strategist at Janney Montgomery Scott, says that food prices should ease in the medium term and that equity markets should continue to move up in the short term.
Luschini, who oversees more than $50 billion in Janney-based investments, shared these comments in a telephone interview Friday, as well as in the firm’s “Hog Cycle” markets bulletin released Tuesday.
Over the next three to six months, there are two dynamics to watch in terms of energy prices and equity markets, Luschini says.
“If unrest in the Middle East [and nearby areas] is contained to the smaller economies, including Egypt, this means there should be no undermining our markets,” Luschini explained Friday. “However, if the unrest spreads to Saudi Arabia, for instance, it could have a dramatic effect on oil prices and impair our economic recovery.”
Still, the U.S. economy is growing, and should provide “fertile ground for equity prices and corporate profits,” Luschini says.
“Overall, I see us moving to higher levels rather than following the trend of the recent pullback,” he said.
In terms of food prices, Luschini (left) says that while he doesn’t expect an immediate correction to today’s food-price inflation but an easing after “a few more quarters.”
(The hog cycle refers to the lag time between the planting of a crop and its harvesting; farmers usually plant crops based on what prices indicate will offer them the most economic benefit, which then tends to experience abundant supply in the next harvest season, followed by price declines.)
Prices, the analyst says, could stabilize in 6 to 15 months. “That staging period takes a while, then crops catch up and we move to a period of abundance,” Luschini explained.
Longer term, the Luschini says prices are expected to move in an upwards stair-step pattern.
“I’ve seen estimates that 70% more food is needed to accommodate the population expected to exist in 2050,” he said. “It’s certainly worthy of consideration when investing, but recognize that there’s no smooth path to higher prices.”
Gold as Arbiter
The precious metal should continue to serve as an “arbiter for fiscal
and financial crises,” Luschini says, as it has done for the past few years, most recently this week in the face of rising oil prices.
“Gold needed a catalyst after the January pullback,” he explained. “We see it as a hedge, for say 3% to 5% of a portfolio. It will move higher over time, most especially in times of fiscal and financial uncertainty and in periods of inflation.”
As the use of gold spreads in emerging markets, like China, the price of the precious metal moves up – even while U.S. equity markets are doing so. “It looks like [gold and U.S. equities] are moving in tandem, but gold is fundamentally a global arbiter of fiscal and economic uncertainty,” Luschini said.
In his latest “Hog Report,” the Janney Montgomery Scott investment strategist says that he and the team prefer large-company stocks in energy, technology, health care and consumer staples.
They also caution investors about getting into commodities at today’s high levels.
One niche to look at, he said, includes companies that supply the agricultural sector with fertilizer, genetic engineering and tractors, such as Caterpillar, Deere or Komatsu.
“We like an ETF with the ticker MOO,” he shared.
This is the MarketVectors Agribusiness ETF, which is up about 2% year to date.