Lord Abbett's Ezrati sees US stocks sleeper class

By Herbert Lash

NEW YORK (Reuters) - U.S. equities could be the surprise asset class next year, especially if the dollar has bottomed and foreigners decide it's time to buy America, the chief market strategist at Lord Abbett & Co. said on Tuesday.

Given that European countries don't want to see the dollar crimp exports, the greenback is unlikely to weaken further, which could be good for U.S. stocks, Milton Ezrati, senior economist and market strategist at Lord Abbett, told the Reuters Investment Outlook 2008 Summit in New York.

Europeans and oil-rich Gulf countries have been waiting for the dust to settle a bit over the subprime mortgage crisis before jumping into U.S. equities, Ezrati said.

"If I'm right on the currency, I think dollar equities will be the surprising asset class going forward," Ezrati said. "We like the market. There's another leg up at least," he said.

The Standard & Poor's 500 Index .SPX, a leading benchmark for the performance of U.S. stocks, could rise to 1,600, which would be "fair value," Ezrati said. A rise to 1,600 would represent about an 8 percent return from where the index closed on Tuesday.

Lord Abbett, which manages about $116 billion in assets, does not have a target date for when 1,600 might be reached, he said.

U.S. stocks extended losses on Tuesday, with the S&P 500 down 2.5 percent, after the Federal Reserve's decision to cut its benchmark Federal Funds rate by a quarter percentage point disappointed investors who had expected a more aggressive reduction.

U.S. large-caps will likely outperform small- and mid-cap stocks going forward. Large-cap stocks are trading at a 10 percent discount to small caps, and their dividend yield is about 1 percent more than small- and mid-caps, Ezrati said.  Continued...