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Sluggish U.S. Economy Could Boost Stocks

Monday, 9 Jul 2007 | 3:02 PM ET

Ned Riley, chief executive officer of Riley Asset Management, told CNBC’s “Street Signs” that he believes a sluggish economy will boost stocks.

Bearish Market?
Debating whether the market will soar, or if we're in for a reality check, with Ned Riley, Riley Asset Mgmt. CEO; Ryan Atikinson, Balestra Capital V.P.; and CNBC's Erin Burnett

“Growth in the economy is going to be sub-par,” Riley said. “I think that’s really positive for stocks. It keeps inflation expectations low, it keeps wage costs low, benefits will be cut, (and) outsourcing is going to be a big issue. This is going to be an interest rate-driven market and inflation-driven market … If Wall Street buys this scenario, then core (inflation) is critical. Valuations are cheap. I think the market can sell at 18 times earnings. I think if you look at the return on equity, it’s at an all-time high virtually. I like the market overall.”

Ryan Atkinson, vice president of Balestra Capital, said he expects the sub-prime housing market to be drag on financial stocks.

“We expect the housing market to get much worse over the next year,” Atkinson said. “It’s really an issue of extreme over-supply in speculative housing. I think the best proxy for this is the home vacancy rate, which is the percentage of vacant homes available for sale. Right now, it’s at 2.8%. The average for the last 50 years is 1.5%. The previous downturns in the market topped out at 1.9%.”

However, he likes integrated oil stocks, including BP and Statoil.

“They’re relatively low valuations and they pay a decent dividend,” Atkinson said. “I think these could do very well.”

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  • Brian Sullivan is co-anchor of CNBC's "Street Signs."

  • Co-anchor of CNBC's "Street Signs," Amanda Drury is based at the network's global headquarters in Englewood Cliffs, N.J.