Watch Stocks Boosted by Fed Asset Purchases: Knapp

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Oct. 23 (Bloomberg) -- Barry Knapp, head U.S. equity portfolio strategist at Barclays, explains why he believes stocks benefitting from fed asset purchases are in for a boost into next year. He speaks on Bloomberg Television’s “In The Loop.”


What he make that call?

The call is -- about this time a year ago, this had been our highest conviction idea, to stay in the sweet spot of fed asset purchases.

We do not really think asset urges those have been effective in the growth sensitive part of the market.

As the fed was driving interest rates lower, it drove money into stocks and bond my characteristics.

As we weakened our exposure to that in may and this summer with the idea that the fed would start an exit strategy in september.

We still believe that right until 1:59 on the 18th.

We make it a bit of an indian summer for those stocks.

We think the trends are towards capital spending and growth getting better into 2014, but we think the stocks are due for a bounce.

Had not -- underpinning all of this wheel bearings -- hang on, underpinning all of this will be earnings.

Scarlet has been keeping a scorecard of the third-quarter earnings season.

A very positive read, but estimates have been ratcheted down.

Eps growth of 4.7% is compared with the forecast of 5.3%. forward estimates are trending lower.

The top light remains a challenge.

Sales growth of 2.2% is half of profit growth, which gets altered by private cutting and share buybacks.


There are some encouraging points in what scarlet said, you have to dig a little bit.

We live in a second derivative world.

You like to dig behind the surface.

That cut to forward guidance, 60 basis points, is far less than the average of 170 basis points that has occurred over the last six quarters.

We have had this pattern of beat and cut, the cut is smaller than it has been over the last year-and-a-half.

When scarlet talked about the 2.2% revenue growth, we were basically at zero a year ago, one percent a quarter ago.

There is revenue picking up.

The domestic names and the global growth sensitive names like it is not so exciting to talk about 2.2% revenue growth.

It has created operating leverage for sectors like industrials, it drives your earnings from 2 to 5 or 6. that second derivative positive.

Julie hyman has been digging into industrials.

It has been kind of a mixed bag.

Even this morning, brian battle was just highlighting the two big industrial reports -- caterpillar cutting its forecast and boeing raising its forecast.

The 2 stocks are trading accordingly.

Metal prices has been coming down, demand for mining the code has been coming down.

Demand for airplanes has been increasing.

A lot of concern to what scarlet has been talking about with global growth and the demand or lack of demand with that.

Barry, you are under way -- overweight industrials.

Overweight industrials but underwent materials.

The inevitable point when china has an investment bust in areas like mining, that is coming home to roost.

That is where caterpillar got hurt, on the mining site, china has been a driver of that.

On the global growth side, europe came out of a recession.

U.s. demand will get better, that is driving industrials l everage to demand for european and u.s. consumers, capital investment in both of those regions.

Stay away from anything china related, global growth is headed higher.

Thank you for joining us, very -- bararry at barclays.

He will be on my radio program at 12:00 noon.

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