Sorry, investment strategists. Nobody, not even the smartest guy in the room, can look into a crystal ball and predict the capital markets’ future. The best way to understand what might happen tomorrow is to study the relevant data today, says David Kelly, chief global strategist for J.P. Morgan Funds.
Based on the available information that he’s seeing right now, Kelly believes that stocks have room to rise—but so do interest rates, he said Thursday in New York at J.P. Morgan Asset Management’s annual research summit.
“It’s not about mystical vision. It’s about seeing today with clarity,” Kelly (left) told the gathering of about 150 chief investment officers as he presented highlights from JPAM’s free second-quarter 2013 Guide to the Markets.
With that, Kelly launched into an economic outlook that pinpoints the Federal Reserve as the biggest drag on the U.S. economy. Chances are the economy could have healed itself after 2009 and the markets would have returned to normal without massive intervention, he said.
“The biggest buyer of the worst assets in the world is the Federal Reserve,” he said, adding that the easy monetary policy of quantitative easing has gone past ineffectiveness to being counterproductive. The economy is recovering without stimulus and bankers are being discouraged from lending, which undermines business and consumer confidence, Kelly said.
Overall, the federal deficit is coming down a lot, but the real credit for the U.S. economy’s growth goes to consumer finances, with a rise in household net worth to $69.2 trillion in the first quarter from $67.4 trillion in the third quarter of 2007 along with a decline in household debt service, Kelly noted.