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Current Market Favors Small Caps, Emerging Markets, Economist Says

Tuesday, 1 May 2007 | 11:30 AM ET

Michael Darda, chief economist for MKM Partners, told CNBC’s “Squawk on the Street” that the current market favors small-cap stocks and emerging markets.

“We’re in an environment of massive liquidity, booming global growth and interest rates are still low,” Darda said Tuesday. “That favors smaller companies, emerging markets. The falling dollar favors international issues over domestic concerns.”

He said valuations remain strong despite the falling dollar.

Instant Market Analysis
An overview of the market, with Michael Darda, chief economist of MKM Partners, and CNBC's Erin Burnett

“If we’re in an environment where the dollar is falling and that’s propping up currency translation, ultimately that can have an overall inflationary impact that creates higher interest rates,” Darda said. “I think that’s probably something to be more concerned about in the future, not the intermediate term.

"If we look at the valuation backdrop, it’s still very strong for stock prices," he continued. "I like to do a comparison to the situation that evolved in the year 2000. If we look at valuations then, it was saying that stocks were very overvalued relative to bonds. We have just the reverse in today’s environment. So, there really is no comparison. I think stocks continue to out-perform bonds.”

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