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Tom Lee, JPMorgan Chief U.S. Equity strategist, gives his outlook on the markets for 2012, plus he reveals what he is feeling bearish about and why.
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-- -- major run this year joining us this top -- the chief US equity strategist at JPMorgan Chase Tom welcome T great to hit.
All right so your target -- thinking 20121430.
What is gonna drive us to that level -- earnings have anything to do with it.
-- I mean you know you can't really have stocks do -- earnings are collapsing so we really still have to have an earnings expansion.
I think the bigger story this -- is really be about the PE multiple you know we're we're really talking about.
Multiples in the market looking like cycle lows.
We're sort of three years into an expansion typically we should -- were on the sixteen times level.
And you know clean get source thirteen to fourteen times you know -- C fourteen Terry in the S and peaceful means sound like we need miraculous in my circumstance to letting the markets cheap and that's what -- put -- -- correcting -- think about it where we're vs a year ago.
You know you're gonna structure -- treasuries were expensive.
Here we are twelve months later treasurys got even more expensive stocks are looking even cheaper some and I think when you me think about -- the world events take place and how to crisis evolves in Europe if things artist best people think.
-- -- than one group that's gonna do pretty well us as equities.
While there is there is tremendous potential for a pop I agree with the I think what were were almost on the verge but there there's still some major threats are -- not I would I would put regulatory threats among the top concerns.
Yeah I mean what you -- you have to remember when you look at -- -- people markets markets climb a while wearing you know if if everything looks like Green -- perfect.
You know we've -- S&P 17100 and -- have -- chance to make money.
So what you really have to do as -- investors think about where the crowd is in you know we're starting the year with people pretty bearish.
We we know Europe's.
Economy slowing.
I think -- earning season I was gonna give us some insights about how strong the US -- -- but I I -- press -- on this -- what are the biggest -- even even -- bulls -- threats -- -- -- well I think what you have to remember is in Europe -- recessions that threat but a banking crisis and so I think Europe we have to watch is to make sure that the current crisis doesn't evolve into something that becomes a financial crisis globally and that's going to be very hard to contain.
On commodity prices are really big problem with the big one really isn't -- it's really -- oil and if there's Middle East problems I think that's can be huge threat.
On what we really need -- oil at 130.
And of course in China you know trying to hard landing scenario which is really what's what's really been sort of bugging investors.
Is is very tough to deal with but a soft landing which is really what we're expecting JPMorgan is this something market in deal.
You know when you mention where the crowds investing in 2011 I sensed the theme was dividend payers yes milanese anything that page view.
Any kind of income for owning that stock and tonight got a lot of dividend payers credit are happy that are rich that's -- -- where's the crowd in terms of sectors.
Well you know yes -- I have to -- in the last two months of 2011.
Everybody got defensive meaning they want it to hold on to cash flow -- and dividend stocks did extremely well.
But we also -- -- 70% of active managers.
Large -- mr.
benchmark by 22 basis points the worst in history of -- management's because people state too defensive.
So way I think you're seeing the next 23 months is look at the recovery global recent intact.
You're gonna see this continuous rotation into cyclicals -- -- people buying financials industrials -- materials things that they don't own.
And I think you know earnings reports especially from the cyclicals it's going to be very telling but I think what it's gonna tell us a look at.
If you got companies in -- interest reporting OK results.
And you don't own them you -- start buying we were talking to David joy about financials we mentioned some specifics in concluding your own company.
But do you think that is a sector of the financials have been beaten down more than any others yeah absolutely -- its search -- top sector picks for this year.
We have to -- couple things one or entering this year where financials on a relative price basis forty year -- -- That's that's right that's that's the real threat after member that the actual financial system today's incredibly good shape anyway -- no -- companies are sitting on.
Hundreds of -- -- excess cash they're ready to take advantage of Europe's crisis to gain market share.
So -- think of Europe resolves itself.
Huge win for financials haven't got the 64000 dollar question right now -- -- correct but then the other aces in the sleeps in the US housing is really starting to show some resilience in their biggest beneficiary of the big banks.
And of course and when you look at elections you know for Republicans gain any share.
Financials are beneficiary can timely great to see it's yeah for having income and a discussion thank get -- best of what confront it thank you.
