Guru watch

Abby Joseph Cohen, professor of business, Columbia University

The outlook for the US is a little less bullish than it was 12 months ago, says Abby Joseph Cohen, the former chief investment strategist at Goldman Sachs, who earned a reputation as a permabull for her upbeat forecasts in the 1990s and 2000s.

“Consumers are in good shape [but] they aren’t in the same great shape as last year,” she tells the Barron’s roundtable. “Consumers entered 2023 with extreme levels of excess savings and demand. They wanted to spend… Some of that ammunition has been used up.” While unemployment remains low, there aren’t as many job openings.

Many companies have insulated themselves from rising interest rates by issuing long-term debt at low rates, but costs may rise as manufacturing shifts back out of China and from increased spending on technology and energy.

Fair value for the S&P 500 is around 5,000, says Cohen (the index has risen to around 5,200 since she was interviewed). There are downside risks to this, she suggests. “I don’t anticipate earnings or cash-flow problems, but am concerned about price/earnings ratios and other valuation metrics.”

Increased mergers and acquisitions (M&A) activity could be a catalyst for a turnaround in smaller stocks, which have lagged the market in the US just as they have in the rest of the world. “Many larger companies are flush with cash and have low interest rates on their debt. They are looking to expand,” she says. “Private-equity investors are also potential buyers. Money keeps flowing into private equity. Whether that is sensible or not is beside the point.”

Beyond the US, “if I were looking to invest in one other market… I would look to Japan”, says Cohen. After many years of sluggishness and deflation, the country is making a “final move toward reflation”, with the economy picking up. Foreign capital is flowing in, but “stocks are still attractive from a valuation perspective”.