"Market Monitor"-Sam Stovall, Chief Investment Strategist at Standard & Poor's
Friday, March 30, 2007
PAUL KANGAS: Here we are at the end of the first quarter of 2007 and with us to review how the major stock averages did and to sort out the quarter's big winners and losers is Sam Stovall, chief investment strategist at Standard & Poor's. Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Happy to be here, Paul.
KANGAS: Now as we view the performance of the Dow, the Standard & Poor's 500 Index and the NASDAQ, give us your description of the markets and what they've done over these last three months. Not a whole lot, looks like.
STOVALL: No, it really, certainly seems as if they've treaded water. The first month was a fairly good one posting an average increase of 1.4 percent which is equal to the average since 1945. We were doing pretty well in February, but then we got tripped up by China. This was after the Dow had hit a new high and the S&P had reached 1460. We tumbled sharply posting our first 2 plus percent one day decline in almost four years. And now in March with questions about whether the Fed will be raising or lowering rates, investors are out there scratching their heads.
KANGAS: Right. Well, the correction though is actually healthy for the market, would you agree?
STOVALL: Absolutely. We have not had a 10 percent correction in four years. And actually typically we have more than one in every bull market.
KANGAS: OK. Now let's take a look at the best performers in the Dow 30. And what do we see, Alcoa at the top.
STOVALL: Well, this company certainly benefited from higher than expected metals prices this quarter, as well as an ongoing takeover speculation.
KANGAS: And AT&T has done well.
STOVALL: Well, this old - SBC telecommunications has experienced a continuation of last year's strong wireless performance and the integration of prior acquisitions.
KANGAS: And Caterpillar was no slouch, that's for sure.
STOVALL: No, it wasn't. Last quarter, however, it was. It had disappointed investors with poor guidance. But I think this quarter we snapback from being oversold and also there a still a good outlook for construction activities internationally.
KANGAS: Now let's have a look at the worst three in the Dow over that quarter, Johnson & Johnson, that's kind of a surprise.
STOVALL: Well, it was hit pretty hard because the company's device diagnostics head had resigned. Also it was on the wrong side of a study that questioned the effectiveness of coronary stents.
KANGAS: And of course Home Depot has had its problems.
STOVALL: Yes. It was nailed by the trimming of earnings forecast due to a continued slump in housing.
KANGAS: OK and Citigroup, that's a surprise too.
STOVALL: Well, concern I think surrounding the financial conglomerate's exposure to the sub-prime mortgage market.
KANGAS: Good point. Let's have a look at the best performers in the Standard & Poor's 500 index topped off by Radio Stack.
STOVALL: This a consumer electronics retailer and it is benefiting from the strong trends in this category. Also benefiting from cost efforts by closing under performing stores.
KANGAS: And Goodyear tire has rolled right along too.
STOVALL: Well, certainly it hasn't blown out yet. Increased investor confidence in this tire manufacturer's turn around.
KANGAS: OK and the Standard & Poor's 500, two worst performers lead by Advanced Micro Devices.
STOVALL: Well, it's said that it might miss its first quarter revenue guidance, also influenced by the complicated integration of a recent acquisition.
KANGAS: And Consolation Brand on the downside.
STOVALL: Well, here is a company that recently acquired Svedka (ph), a Swedish vodka brand and Vincor (ph) at very high prices so investors are questioning the benefits of these.
KANGAS: Moving over to the NASDAQ 100 index, we see at the top of the best performers Milicom.
STOVALL: This is a global telecom company that has benefited from very strong revenue growth as well as investor interest in emerging market wireless operators.
KANGAS: And Intuitive Surgical did well.
STOVALL: Yes, it did. Fundamental news, the company reported sales that had surged 66 percent on strong sales of its da Vinci surgical systems.
KANGAS: And the NASDAQ 100's dogs so to speak, Virtex Pharmaceutical.
STOVALL: Here there was concern over phase 3 clinical trial of its hepatitis C drug.
KANGAS: And Cepracor.
STOVALL: And Cepracor. Investors woke up to the weakening trend in prescription sleep medications.
KANGAS: OK, very interesting, indeed, Sam. Now we just have a little less then a minute. But I wanted to ask you how you see the second quarter shaping up on Wall Street.
STOVALL: Well, on average the second quarter is the second best of all for gaining about 2.8 percent since 1990. None of the 10 sectors in the S&P 500 posted average declines. I think however it could be a bit challenging. We're forecasting a 5 percent increase in first quarter earnings which is half of what we saw in the fourth quarter of '06.
KANGAS: What sectors are your favorite for that period of time?
STOVALL: Well, I think that we could see some good growth in the health care category, also likely to see continuation of good earnings in the material sector.
KANGAS: OK, very interesting indeed, Sam. It's great to see you again and thanks for being with us.
STOVALL: Thank you, Paul.
KANGAS: My guest, Sam Stovall, chief investment strategist at Standard & Poor's.