A top economist and market strategist at Citigroup both say they did not think the housing slowdown is going to cause the economy to plunge into a recession or the stock market to fall into a tailspin in 2007.
Speaking at a breakfast for financial reporters at the company’s headquarters in New York in November, Citigroup senior economist Steven Wieting said that concerns about a recession due to softness in the housing market are overdone.
In fact, Wieting said that if the housing market had not cooled this year, that would have presented a greater risk to the economy since it most likely would have led to increased inflation and probably more interest rate hikes from the Federal Reserve.
“Without the housing downturn, the economy would be overheating and there would be more inflation and tightening pressures,” he said.
Wieting indicated that perhaps too much attention is being paid to the housing market and that there would need to be more than just a real estate slowdown to cause widespread pain to the consumer. He pointed out that consumers have so far withstood weakness in housing as well as a steady rise in the price of oil and gas over the past few years.
“There is this perception of an extremely vulnerable consumer that you’ve heard about for every day of your career and so have I,” he said, in response to one reporter’s question about consumer spending. “Consumer stability is nothing new.”
Tobias Levkovich, the chief U.S. equity strategist for Citigroup, added that as long as the labor market remains healthy, consumer sentiment will likely remain relatively strong as well.
“Job growth should support continued spending growth,” he said.
With this in mind, Levkovich said he conservatively expects the stock market to be up in the high-single digits to low double-digits in 2007. He has a year-end 2007 target for the S&P 500 of 1,500, about 8 percent higher than current levels.
Levkovich said one of the most encouraging signs for investors is that many companies are sitting on a large amount of cash. He pointed to figures that showed cash as a percent of total market capitalization for the S&P 500 is near a 20-year high.
