Fed's Beige Book Report Is 'Best Of All Worlds', Analyst Says

Michael Darda, chief economist at MKM Partners, told CNBC’s “Street Signs” that the current Beige Book is the “best of all worlds.”

“It’s confirmation of the upturn in specific indicators,” Darda said Wednesday. “We’ve seen retail sales data from May – that was strong. We’ve seen a rebound in production in manufacturing. That looks like it’s continuing. In capital goods orders, which weakened, now have begun to accelerate and that also seems like it’s continuing into June.”

The Federal Reserve said U.S. economic activity expanded from mid-April through May. Seven Fed districts described growth as “modest” or “moderate” but others reported “moderately strong” growth. The summary of anecdotal economic conditions said overall wage pressures hadn’t increased and the job market remained strong. However, real estate continued to be weak.

“This is certainly good news on (the inflation) front,” Darda said. “I think the next Fed move is up, but it’s certainly uncertain as to when that’s going to be. They may hold rates steady for the entire year, which I think is a powerful backdrop for stock prices. Whether they move rates up late in 2007 or if it’s not until 2008, in the interim, I think the bias is going to continue to be higher for stock prices because this economy is strong. This recession call, I think, has been blown out of the water. The rate cut call, which I thought made no sense, has also been taken out.”

The report translates into good news for investors.

“For a 75 basis point back up in bond yields, equities, on net are up,” Darda said. “We really only have about a 2.5% decline from record highs to complain about. The bears are going to have to do better than that.”