Kevin Divney, Chief Investment Officer for Putnam New Opportunities Fund, told CNBC’s “Squawk Box” that consumer spending may not be cyclical.
If so, that could smooth out the bumps in market performance and suggests the current rally will continue.
“Is the consumer cyclical?” Divney said Thursday. “I think business cycles are certainly evident and maybe the consumer pulls back because of employment or wage pressure. But maybe the consumer isn’t cyclical. When you think about how people spend each year – and when the economy has 95% of the (workforce) employed – people are going to shop and buy things to try to make their lives better. I think that has been the disconnect between what we saw in the last economic slowdown – the consumer got us through when capital expenditure (for business) began to decelerate quite a bit.”
Consumers are now global, and share an affinity for top brands such as Apple’s iPod or Nike sneakers.
“Integration of the (world’s) economies makes the cycle less volatile because a lot of the U.S. companies have made manufacturing costs cheaper by doing things in China, Mexico and elsewhere,” Divney said. “I think U.S. companies lead in brand recognition and that’s reduced the volatility because we still see great growth outside the U.S.”
He said earnings of retail companies will grow about 10% this year.
On Wednesday, the Dow Jones Industrial Average, Wilshire 5000 and the Russell 2000 hit new highs.
“I don’t think the consumer is slowing down,” Divney said.