Investing Today:Trends and Prospects

There are certain types of home buyers that want a new home.I don't see that dissipating quickly,said Carl Tannenbaum,chief economist at Northern Trust.Prices almost across the country are rising nicely.
I don't think the risk of disinflation in the US is terribly high.The Great Recession created a lot of capacity in factories and labour markets,and we're just now bringing that down.As long as we don't have backsliding,I think the Federal Reserve will start tapering back their asset purchasing.
Chinese home prices rose as those in Guangzhou soared by the most in over two years.
The late forties and early fifties are the only really comparable period to today,according to Barry Knapp,head of equity strategy at Barclays Capital.Not until the Fed exited did defensive stocks underperform.
Looking deep within the equity market,any exposure to China massively underperformed in the past month.Japan's gain is the rest of Asia's loss.
Ford says it can capture 6% of the Chinese auto market by 2015,while Intel forecasts Q2 earnings that may beat estimates on server chip demand.PepsiCo's Q1 profit beat estimates as snack food sales rose.
iShares Dow Jones US Home Construction ETF(ITB),Intel(INTC),PepsiCo(PEP),Ford Motor Company(F),iShares FTSE China 25 Index Fund(FXI)

Barclays Capital Market Insights

The outlook from Barclays Capital is that,in reality,the macro environment's been deteriorating for the past few months.It's the end of the inventory replenishment cycle.There is no evidence of increased consumption.The Cisco news was a shocker on business consumption.Clearly it's not sustainable.Given the shape of the labor market,there will be no improvement over the next 4-6 weeks.
Barclays thinks 2011 earnings will be up 5%,not 15%.Current stock valuations are relatively attractive,but clearly there's a risk of tipping back over.The potential of a tax hike could tip us over the edge.
Barclays has increased its allocation of staples and utilities.If we can get through to the other side,the two cyclical sectors with the best chance to be secular leaders would be industrials and tech.Barclays has taken tech down for the next several months,however,as the chip replenishment cycle is over.
Barry Knapp is Chief U.S. Portfolio Strategist at Barclays Capital.
Barclays(BCS),Cisco(CSCO)

Crunching the Market:Barclays Capital

As liquidity,or various forms of government intervention,gets withdrawn from the market by central banks,there will be lower lows and lower highs.By the time we get to rate hikes,the process should be complete,in the view of Barry Knapp of Barclays Capital.The process started with Chinese tightening.A recovery starts with government stimulus,then moves on to inventory restocking,eventually resulting in hiring.
Barclays is selling cyclical stocks and buying defensives.Cyclicals are companies that rely on robust growth,such as industrials,energy and materials firms.Defensives are in areas that are less economically sensitive,such as consumer staples and health care.In the current case,however,industrials are just starting to recover.As a rule,during a period of adjustment to stimulus withdrawal,defensive stocks are likely to outperform.Many analysts expect the Federal Reserve to raise interest rates in the second half of the year,a major step in the transition process.

Early Edition:AmEx As An Investment

As of the close of trading Friday,American Express shares were at 32.84,down 1.40.Their 52-week range was 9.71-41.80,so they have made up a lot of lost ground since the market's March low.AmEx's price/earnings ratio was 26,which is relatively cheap for a credit card firm,while its dividend was comparatively high,at 2.2%.Barclays Capital favors it as being among those with a declining default rate and prospects for improved earnings over the medium term.
Besides its core credit card business,AmEx offers deposit accounts and prints checks.It has extensive ties with the travel industry as well,offering special deals with a number of cruise line partners.Its brand is among the most prominent and prestigious worldwide,which in itself gets AmEx on many portfolio short lists.

Where This Leaves Us

Shane Oliver of ANP Capital Investors in Sydney,Australia thinks we are 85% through the bear market.We are probably near the bottom of share prices.Stocks are very cheap now.Mr.Oliver likes the telecom and consumer staples sectors.Peter Redward of Barclays Capital(BCS) says the Federal Reserve is doing all it can to make sure that Lehman Brothers unwinds its positions systematically.Ultimately,the market has to work as well.Earnings multiples have to come down because of widening credit spreads.At this point,financial markets are leading the economy.Before,it was the other way around.In consequence,the economic dynamics we've had are unlikely to continue.Countries such as South Korea and India are vulnerable because of their current accounts deficits,Mr.Redward feels.Today the Federal Reserve releases its interest rate decision.This could be a market-mover.In any event,shares of McDonalds(MCD) and Johnson and Johnson(JNJ) were up this morning.