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Riskier Assets Are Still Priced 'Fairly Low'

Stocks stayed generally flat on Tuesday as yesterday's global rally lost momentum. How should investors be positioned? Ed Keon, portfolio manager and managing director at Quantitative Management Associates, Prudential Financial, and Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners, shared their insights.

“There’s a margin of safety in current equity valuations that makes me a buyer and there’s a chance that investors might rotate towards higher quality, large-cap stocks as a result of what happened in the last week or two,” Trennert told CNBC.

Based on current valuations, Trennert said it is “hard to get really bearish.”

“Europe’s problems are creating more of a bid for our own long-term Treasury securities,” he noted. “It keeps long-term interest rates low, takes the pressure off oil and keeps the dollar stronger—these things are good for financial assets in the U.S.”

Meanwhile, Keon said the problems in Europe are giving the U.S. a chance to react to its own problems.

“We have the same issue of too much government spending and low tax revenue to pay for it,” he said. “We have an economy that’s in a better shape and has a lot of global competitiveness—we have a chance to use the next couple of years to use that time to fix some of the underlying issues.”

Keon said he remains overweight on riskier assets and prefers stocks over bonds, especially high yield securities.

“I still think the prices of riskier assets are fairly low,” he added. “And we’re trying to be underweight Europe relative to emerging markets where there are also big issues, but better longer-term opportunities—the risk reward is better there compared to more established markets.”

  • Watch Keon's Previous Appearance on CNBC (Apr. 13, 2010)
  • Watch Trennert's Previous Appearance on CNBC (May 5, 2010)

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Disclosures:

No immediate information was available for Keon or Trennert.

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