Global Growth: Looking Good

Data suggest a strong recovery in Japan and stronger growth in the EU, according to S&P strategists

From Standard & Poor's Equity Research

Here are the notes from Standard & Poor's Investment Policy Committee meeting, Wednesday, June 28.

Economic Outlook

Longer term, data suggests a strong recovery in Japan and stronger growth in the EU, in our opinion, as well as solid growth in oil-producing countries, which should support world growth. In contrast, we see growth for the U.S. economy coming down from very strong reading of 5.3% in the first quarter to 2.4% in the second half of 2006.

S&P's European economist Jean-Michel Six expects the EU to raise rates a couple more time this year to 3.25%. The BoE held rates at 4.5% and is not expected to change rates this year.

Fundamental Equity Outlook

Q2 operating earnings for the S&P 500 are estimated to reach $192 billion, or $21.19 a share, vs. $177.5 billion, or $19.42 a share, in Q2 2005. If this expected growth of 9.1% holds, it will mark the first time in 16 quarters that the S&P 500 failed to grow earnings by double digits.

S&P's Equity Strategy Group raised the recommended sector weightings on Telecom Services and Utilities to marketweight from underweight, citing high dividend yields and the interest-rate uncertainty that will likely continue to cause investors to re-evaluate their appetite for risk, combined with Telecom's strong cash flow from wireless operations.

  S&P's Asset Allocation