There are very few Chief Economists or Chief Strategist types on Wall Street who have any kind of background actually trading and running money. Most are making their calls with little connection to how markets actually feel when they are reacting to or anticipating the data.
Barry Knapp is different, he traded for years at Lehman before becoming the head of U.S. equity-portfolio strategy for Barclays.
Knapp’s take on where we are in the economic cycle and what that means for stocks appears in this weekend’s Barron’s…
Knapp: If you think about the drivers for equities and sectors, there are three–the business cycle, valuation and fundamentals. When you are at this stage of the business cycle, where the economy is improving and Federal Reserve policy is still accommodative, you would probably give the business cycle roughly a 75% weighting in your model. That is really the key to how the equity market does this year. Indeed, we are at the stage where we are getting to so-called escape velocity, which is when the economy reaches its self-sustaining stage. We clearly think that’s the case. The fundamentals are reasonable. But there is a lot of second-derivative-itis out there.
He gives us the sectors that should work now given his economic assessment. This is today’s required reading, especially if you’re a pro running money.