Joe Battipaglia
- Rande
- Kirk
- Felipe
- Rande
- Kirk
- Felipe
- PfatPrawfit
- Rande
- Rande
- Kirk
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» Rande - Weekly Joe:
Weekly Joe:
Monday, November 6, 2000
Weekly Perspective
For the third quarter, productivity again grew faster than unit labor costs. Measured on a year over year basis, productivity rose 5% while unit labor costs rose just 0.1%. This compares favorably with the same period a year ago when productivity had risen 3% and unit labor costs had advanced 1.8% versus 1998 levels. While this series tends to be volatile, the important take away is that rising productivity and non-accelerating unit labor costs continue to help maintain price stability in the economy and is helping corporations improve profitability through a combination of investment in plant and equipment as well as direct investment overseas. Such advances in productivity at this stage of the business cycle remains remarkable and without precedent. The fact that slowing growth in the economy has not impacted productivity growth is a distinct positive as well.
Earlier this year, amidst great concern about excessive consumption and aggressive credit tightening by the Federal Reserve, I forecast that slowing in the economy would lead to a less aggressive posture by the Federal Reserve before the election. With the election at hand, the consensus opinion now calls for a “neutral” Fed through year-end. As the chart below shows, the most interest rate sensitive sectors of the economy including home and automobile sales have showed real signs of slowing in response to tighter credit conditions. This seems to be exactly what Dr. Greenspan ordered. I believe that a slowing economy coupled with low inflation and relatively high real interest rates will lead the Federal Reserve to lower interest rates next year.
In the weeks since October 11th, when earnings season began in full stride, equity markets have begun to again show signs of improvement as results again met or exceeded analyst expectations in most cases. According to First Call, S&P 500 earnings have risen almost 20% versus the same period last year with over 80% of the companies reporting. So far, this performance is better than the 16.3% increase expected as of First Call’s October 1st survey. All this despite a sharp rise in energy prices, a poor translation rate for the Euro, and supply disruptions in several areas of the electronics marketplace. In response, the Nasdaq composite arrested its September swoon and has climbed 10% since the middle of the second week of October. The Dow Jones Industrial Average has also added over 400 points.
The concern has now shifted to decelerating earnings next year. While I do expect to see a slowing in ’01 from this year, my forecast remains for relatively strong growth of 14% in operating earnings – somewhat higher than the annualized growth rate of the 1990’s. Contributing to the growth should be continued margin expansion; lower debt levels and better results from the results of foreign affiliate divisions of U.S. multinationals.
In the months ahead, I expect concerns over energy prices and the fate of the Euro to wane further. December Crude Oil futures are now pointing to lower $32 bbl oil prices – down 15% from oil’s high water mark just a few weeks back and the Euro has begun to firm thanks to two interventions by the European Central Banks. It is worth noting that just one year ago, the chief concern over currency was with regard to the falling dollar versus the Japanese Yen. Since then, the issue of the Yen “crisis” has faded without any dramatic recovery. Finally, positive comments from Intel and others in recent weeks suggest that the acute supply shortages of last summer may be finally coming to an end.
I, therefore, remain bullish in my outlook for equity prices in the weeks ahead and am making no changes to my recommended asset or sector allocations. My year-end index targets remain 4,300 on the NASDAQ composite, 12,500 on the Dow Jones Industrial Average, and 1,625 on the S&P 500.
-- posted by Rande
» Kirk - Weekly Joe:
Weekly Joe:Monday, November 13, 2000
Weekly Perspective
The fallout from Tuesday's election results led one newspaper to headline, "Nation On Hold." For investors, it's more like, "Rally On Hold." What started as a promising beginning to a year-end rally has turned into sluggish volume, harsh rotation and sagging equity prices.
There are so many twists and turns to the political drama that all we can be certain of is that ultimately a President will be selected. How much time and through what process is anyone's guess. With that type of national backdrop, is any economic or market forecast worth describing? I think so. Consumers and businesses have been through a tough year, having to face Fed rate increases, the internet hysteria and higher energy prices. Despite these challenges, the U.S. economy turned in a solid performance as employment continued to grow, income and spending stayed on an upward trend, and confidence remained high.
Investors hoped the election question would have been answered Tuesday. Forgotten in the Presidential question is that the lineup in Congress has been decided with Republicans hanging on to a slim majority in both Houses. This suggests that voters prefer a steady as it goes approach to governance that has served them well to this point. In addition, whichever candidate succeeds, he will be chastened by the narrowness of his victory and spend the early years of his administration seeking consensus, forging new relationships and championing a modest agenda. This is a very conducive environment for the economy and stock prices. Meanwhile the Fed-engineered soft landing and continuing good news on the inflation front (last month's core PPI was -0.1%) leaves Alan Greenspan ahead of the curve and in a position to lower rates over the next six to nine months as necessary. Outside of a momentary hesitation as everyone watches the unfolding developments, I don't expect the Bush-Gore drama to bring on a recession. Just as in past close elections, not everyone is happy with the outcome, but we get over it quickly and the economy moves ahead. Remember, both Clinton terms began with the Clinton team receiving less than 50% of the vote.
There has been a quarterly ritual of analysts hand-wringing worrying about each quarter's profit picture. This year's fourth quarter is no different. PC manufacturers are the most recent victims of these worries as competitive forces and margin pressures take their toll. This, however, is not indicative of an end to the spending cycle for technology. The movement away from PC-centricity to a broadband, real time internet and wireless environment continues. It is not a stretch to see year-end business spending finish strongly and the consumer to come on with a burst of spending confidence into the holiday season. U.S. exports are rising monthly and foreign affiliate results in local currencies continue to rebound. An easing of the Dollar-Euro pressure will help future profit translation.
Equity valuations have returned to reasonable levels, leaving the various indices in a good position to rally on future, more advantageous conditions. Therefore, we leave our asset allocations, sector weightings and index targets unchanged while the rally waits "on hold."
See Web site: for tables, charts and sector weighting recommendationss.
-- posted by Kirk
» Kirk - Re: Withdrawal symptoms
In response to message posted by Felipe:The link above didn't work, but if I go straight to Gruntal then click as Rande suggests, then it works! Weird.
http://www.gruntal.com/
or
http://www.gruntal.com/research/joeb.html
It looks like Joe is on vacation as I didn't see him on CNBC this AM either and he isn't on the guestlist http://www.cnbc.com/cnbctv/shows/guestli...
-- posted by Kirk
» PfatPrawfit - Battipaglia is finished
The BAT man is finished as a high profile guru. His prediction of a 5500 nasdaq, I know he modified it, at the beginning of the year has made him look at best, an incompetent. I see he hasn't updated his website for two weeks. I wonder if Gruntal fired him.-- posted by PfatPrawfit
» Rande - Re: Battipaglia is finished
In response to message posted by PfatPrawfit:Pfat,
It's a common mistake to think that failed predictions matter. In the prediction game, right or wrong is relative, and it takes a lot to fall out of favor. Just look at all the perma-bears who still have a following. People are generally hungry for predictions, for "tips." Doesn't matter if they're right or wrong. A certain type of investor will always come back for more.
-- posted by Rande
» Rande - Battapaglia on CNN's Moneyline News Hour tonight, "predicting"
Battapaglia on CNN's Moneyline News Hour tonight, "predicting" Dow and Nasdaq. Says he's not just "relatively" bullish, he's "just bullish." Admitted he's been wrong so far this year -- REFRESHING. Asked if the Nasdaq will particpate in "Bush rally," he said yes, but qualified it by saying we need a friendly Fed to make it last, something he expects. Says, "techs will lead the economy." The guy never gives up. Anyone hoping he's wrong?-- posted by Rande
» Kirk - Monday, December 4, 2000
REALLY nice graphs this week on Joe's site.http://www.gruntal.com/research/joeb.html
I'll copy the text to here for future reference, but go look at his web site for the great graphs.
KEY Point:
Accordingly, I am initiating my 2001 year-end price targets on the various indices as follows:
Pretty much what he predicted this year to end at just a month ago... Read his comments on why he was wrong:
Monday, December 4, 2000
Weekly Perspective
It is becoming increasingly apparent that the U.S. economy has decelerated to a more sustainable cruising speed. Last week’s revised third quarter GDP data offers the most recent example. For the third quarter, revised gross domestic product rose at an annualized rate of 2.4% - down from the 8.3% pace of the fourth quarter of 1999. Prices also behaved in the third quarter measured by a scant 1.9% increase in the deflator – once again demonstrating exceptionally good balance between supply and demand in the overall economy. Despite more gradual growth in overall output, S&P reported earnings are now thought to have risen by 18.4% in the third quarter according to a survey conducted by First Call. The same survey expected a 16.3% increase at the start of the reporting season, but better than expected results in the energy, technology, and healthcare sectors, among others, helped to raise the consensus view to it’s current level. Dogged by concerns over a hard landing in the economy, perceived high energy prices, and company specific issues, expectations for the fourth quarter and first quarter of next year continue to be revised downward. Since October 1st, First Call’s estimates for the fourth and first quarter have declined 4.9% and 3.2%, respectively to 10.7% and 11% but still remain above the 9.2% annualized rate of growth experienced during the past ten years. I/B/E/S also reports falling expectations for full-year 2001 earnings growth which are still above historic levels.
When not preoccupied by the election drama, much of the discussion among investors is focused on the possibility of a hard landing scenario. This, of course, remains to be seen, but most indications point to something much less severe. Early last spring, I forecast that economic growth would indeed slow to more moderate and sustainable growth in line with historic trends. Such a gradual slowdown would come as a direct result of tighter credit conditions and the normal ebbing of consumer demand which tends to follow exceptionally robust periods of spending.
My conclusion was that inflation would remain mute and will ultimately lead the Federal Reserve to a neutral position. Now, I believe that the Federal Reserve will lower rates in the coming months as they did in 1995. One, perhaps two, ΒΌ point rate cuts likely by the end of the first half of 2001 and I expect the Federal Reserve to adopt a more conciliatory tone during their upcoming FOMC meeting on December 19th. One should note that, the futures market for April fed funds now suggests future rate cuts may be in store versus an expectation of further rate increases as was the case last August.
The justifications for such a move at this time are plentiful. First, inflation (ex-the effects of higher energy costs) has remained absent from most popular inflation measures including year over year changes in the consumer and producer price indices, as well as in the various deflator numbers found in the National Income and Product Account tables along with the PCE core deflator released recently as part of the report on consumer spending.
Second, relatively high real interest rates continue to place undesirable pressure on global currencies including those of our largest trading partners. The dollar’s strength in comparison to these currencies continues to exacerbate already high current account and trade deficits in the U.S. Third, the objective of credit tightening has been accomplished given the deceleration already evident in the most cyclical and interest rate sensitive areas of the economy including housing sales, auto sales and monthly retail sales. Recent anecdotal evidence about excess inventories (ie. automobiles and personal computers) suggest further slowing in manufacturing and additional pricing pressure ahead. Initial jobless claims have also trended higher in recent months despite continued full employment.
Taken together, this evidence suggests stable prices coupled with some inventory adjustment, but nothing more serious – the original outcome sought by the Fed. Fourth, significant and long lasting benefits from rising productivity continue to lift the non-inflationary potential growth rate of the economy. For some time, the U.S. economy has sustained a non-inflationary rate of growth higher than that previously thought possible by many economists. And lastly, concern about “irrational exuberance” have rightly faded as equity valuations have declined during the past nine months despite a 100 basis point drop in five and ten year treasury yields.
The environment for equity investors is favorable in light of lowered expectations on earnings that can easily be exceeded and my forecast for credit easing by the Federal Reserve. Valuations also have become more attractive when measured relative to their forward price to earnings ratios. Today, the S&P 500 trades at a multiple of approximately 21 times next twelve-month earnings estimates versus a multiple of 25 last March. This change equals a 16% compression in market multiples in just seven months.
In the near term, I expect the passing of several key dates to remove a great deal of uncertainty that remains in the market. By December 12th, I expect resolution to the unsettled contest for President. By December 19th, I expect to hear from a “kinder, more gentle” Federal Reserve board when it meets to discuss the future of monetary policy. Lastly, December 25th should bring with it ( in addition to plenty of blessings and good cheer ) generally positive results for most retailers post the holiday shopping season. Looking out to next year, I believe that somewhat less than what Dickens called “Great Expectations” will be met with positive surprises that will re-energize the broad market for equities.
Accordingly, I am initiating my 2001 year-end price targets on the various indices as follows:
Dow Jones Industrial Average – 12,700
S&P 500 – 1,650
NASDAQ composite – 4,300
These sound much like the targets I originally set out for the year and they are. This year has been hard on most investors and strategists alike who have had to contend with such unexpected challenges as the hast collapse of the internets, and a dead – heat Presidential election, that even as of this writing, is yet to be settled.
-- posted by Kirk
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