article , video 08-06-2014

Current Economic Conditions May Push Valuations Higher

Portfolio Manager Charlie Dreifus talks with Principal Dave Gruber about the current economy and the possibility of higher equity valuations.


Dave Gruber: Let's talk about the economy a little bit. I know that what you do is bottom up, but you do pay attention to what's going on in the economy. What are you seeing out there right now?

Charlie Dreifus: What I'm seeing is good. I'm seeing slow growth but consistent growth. It's as has been described by others as new neutral, which is sort of a Goldilocks environment—not too hot, not too cold.

The economy grows but not fast enough to cause inflation to rise dramatically or interest rates to rise dramatically. That is fortunately a great outcome that we've sort of evolved into—part by luck, part by the energy renaissance, the manufacturing renaissance, all of these things. This bodes well.

As long as inflation is contained, multiples can stay where they are, and, in fact, what I'm also seeing in the economy is I'm seeing the possibility of companies reporting vastly increased earnings due to their mean and lean process over recent years. They've reduced costs so that the incremental margins on increased revenues will cause earnings probably to come in higher than people expect. And in that environment, while certainly valuations are not inexpensive, they still have room to go higher.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.



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