Joe Battipaglia
- Rande
- Kirk
- Rande
- DennisL
- Rande
- Rande
- collguy
- DennisL
- bullrun
- JenL_2
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» Rande - Weekly Joe (same Bat-time, same Bat-channel)
Weekly Joe (same Bat-time, same Bat-channel)http://www.gruntal.com/research/joeb.html
I am encouraged by last week’s economic data showing an economy not in a freefall as well as the reaction of many stock prices to recently announced earnings. Stable levels of spending coupled with easing inflation, falling interest rates and a sharp reduction in new production during December has advanced the recovery process. I expect to see rising production levels with each passing quarter along with a commensurate acceleration in profit growth beginning with the second quarter. Sources of additional earnings growth should come from rising export demand and better foreign results.
For the month of December, core consumer prices advanced by a less than expected 0.1% - a sharp decline from the 0.3% pace in November. The increase was the most modest in a year and I expect this trend to continue pushing the run rate for core inflation under 2%.
Last week’s Q4 reported earnings from IBM, Nortel, Bear Stearns, Lehman Brothers and Alcoa, suggest that there may be some life left on the earnings front after all. Of course not all companies fared as well, particularly those tied to deeply cyclical industries such as automobile manufacturer Ford Motors and supplier of housing materials Home Depot. On balance, however, the results were not all that bad. Based upon data provided by Briefing.com, more than 80% of companies that reported between January 1st and January 18th met or exceeded analyst’s expectations. Of the reporting companies, the median year-over-year growth in reported earnings was 11.9% - somewhat better than the consensus view for Q4 results. While we are still in the early innings of the reporting game it appears that this is not the “nuclear winter” scenario.
Beyond the earnings and economic data, the next important date on the calendar is the January meeting of the FOMC next Wednesday. I expect the Federal Reserve to further lower short-term interest rates by at least 25 basis points and maintain an easing bias. I believe that another 100 to 125 basis point reduction is likely before the Fed finally completes it’s work. As this happens, recession fears should fade as consumption and business spending respond well to easing credit.
So what should investors expect once the economy turns the corner? Can the bull market regain it’s footing? Absolutely. I believe a continued bull market with lessened volatility is the most likely course. Part of the reason remains a growing economy, rising earnings and stable prices, but a less invasive Federal Reserve should also help most financial assets perform well. Recent history illustrates this point. Throughout the first half of the 1990’s, for example, the S&P 500 gained roughly 12% annually and volatility remained relatively low. It is worth noting that market volatility was at it’s lowest during 1993 – the year the Federal Reserve took no action on interest rates. The second part of the decade, however, brought with it an increasingly inflation wary Fed, a period of global economic crisis, political tumult, and the explosive rise and fall of “dot com” mania. Despite all this, the S&P 500 managed to accelerate it’s annualized rate of return to 16% despite a big pickup in daily market volatility that almost doubled (see chart) from the 1990-1995 time period.
With the Federal Reserve set to provide a more gentle handling of the monetary tiller, I believe the stage is now set for more normal relationships between stock prices, earnings growth and prevailing interest rates. Already, the Federal Reserve’s attempts to ease short-term interest rates have helped to restore order to the bond market by allowing the yield curve to assume a more normal shape. In a few short weeks, the spread between ten year and two year treasury yields has widened to around +40 basis points from a range of –10 to –20 basis points last year. The average spread over the past several decades has been near +60 basis points. For most of last year, the yield curve remained inverted as short-term rates were held unusually high by the Fed and longer dated maturities were repurchased as part of a government plan to reduce the country’s outstanding indebtedness.
In this environment, individual investors should continue to focus on stock selection over indexing as the preferred method for building out a portfolio. The criteria for stock selection remain the same. Successful companies must consistently meet or exceed analyst’s expectations for earnings, be willing to repurchase stock with excess cash, drive productivity through the adoption of new technologies, and build global relationships through mergers, acquisitions and strategic partnerships.
-- posted by Rande
» Kirk - Joe says to not use index funds???
Interesting comment from Joe:In this environment, individual investors should continue to focus on stock selection over indexing as the preferred method for building out a portfolio.
I wonder if that means he still sees large pockets of over valuation, but still expects the NASDAQ to hit 4300 by New Years? You would think that 2750 to 4300 would be gains enough for anyone from an index! Perhaps he doesn't have that much faith in 4300 and it is more for attention?
Any other ideas?
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-- posted by Kirk
» DennisL - Re: Joe says to not use index funds???
In response to message posted by Kirk:Bat Man was so far off with his original predictions for 2000, I take everything he says with a huge grain of salt. Just as there are extremists on both the left and right sides of the aisle in politics, there are extremists on both the bullish and bearish sides of stock market opinion. Our pal Roger is an extremist bear. Bat Man is an extremist bull. I ignore both as I formulate my own opinions regarding future market direction.
Shun index funds? What a foolish statement.
...DennisL
-- posted by DennisL
» Rande - Still at Bat:
Still at Bat:Joe Battipaglia: Greenspan shows kinder, gentler side
http://cbs.marketwatch.com/news/current/...
NEW YORK (CBS.MW) -- My year 2001 outlook included the debut of a "kinder, more gentle" Fed.
Federal Reserve Board Chairman Alan Greenspan used last Friday's appearance before the Senate Budget Committee to practice his new role.
This time around, there would be no talk of a depleted labor pool, measly savings rates or rampant consumer spending. And there would be no mention of "irrational exuberance."
Instead, the chairman focused his remarks on growing federal budget surpluses created by the marathon expansion of the last decade. With a nod toward the technology boom and his own adroit stewardship, the economy's success was credited to a persistent rise in productivity and a dampening of inflation. He also suggested that increases in productivity were structural and permanent.
The Fed now believes that "more rapid advances in productivity have been raising [the economy's] potential growth rate." While this sort of thing can stir endless debate among economists, the relevant point for investors is that the Federal Reserve is becoming more tolerant of growth. Such broad, global thinking is a welcome new direction for the Federal Reserve, with bullish long-term implications for financial markets.
Important takeaways from the meeting included a confirmation by the Fed chief that inflation remains tame, that side-by-side tax cuts and rate cuts were not incongruous, and that monetary policy remains the primary tool of choice to direct the economy in the short run.
The chairman's basic support for tax reform removed another significant roadblock to tax cuts that remained inside the Beltway. Until Congress addresses the issue, the market will have to settle for more cuts in interest rates to get the economy rolling again. After all, it is far easier to arrive at a consensus within the FOMC boardroom than within the halls of Congress.
This Wednesday, the FOMC is expected to deliver another 50-basis-point decrease in short-term rates. That's without precedent under Chairman Greenspan's watch: This would be the first instance of back-to-back, 50-basis-point rate cuts within a 30-day period. While a 50-basis-point cut would certainly be welcome, a more modest 25-basis-point cut coupled with a commitment to reduce rates further should be sufficient.
As for the economy, I believe early signs of recovery have already begun to appear. Last week's weaker-than-expected December durable-goods report (down 1.4 percent, excluding transportation) suggests accelerating draw-down of excess inventory that continues to drag on the economy. Since consumer confidence and spending remains relatively strong, the downtick in new orders is a welcome event.
Other positive evidence also exists. Stock and bond markets (particularly the lesser credit qualities) have been performing better, and mortgage refinancing rates and growth in overall monetary aggregates are accelerating. This suggests rising spending by business and consumers as the year progresses. I expect the second quarter to bring about improving orders, output and earnings for most companies.
With the Fed now working for us rather than against us, and improving fundamentals ahead, I expect to see new highs on the major indexes as we move toward year-end. I am maintaining my S&P (SPX: news, msgs) and Dow (INDU: news, msgs) targets of 1,650 and 12,700, respectively. The Nasdaq Composite (COMP: news, msgs) should perform even better given the greater volatility of the index, the dynamics of underlying earnings and the heavy concentration of the index in just a few names. Therefore, I am maintaining a year-end Nasdaq target of 4,300.
-- posted by Rande
» Rande - Still Bullish
Believe it or not:Positves Lurking Behind the Headlines"
http://cbs.marketwatch.com/news/current/...
NEW YORK (CBS.MW) -- Beyond the headlines, the environment for equities is on the mend.
While CNN cranked up the byline from Baghdad, action in Iraq is consistent with the standing rules of engagement and is supported by our strategic allies around the world.
In fact, Friday's actions demonstrate the Bush administration's willingness to act promptly in its role as policeman for the Persian Gulf region.
Another headline: Friday's higher-than-expected reading on the producer price index and lower-than-expected consumer-confidence data put investors in a quandary.
The headline PPI number pointed toward higher inflation, which the market took as sign that further rate cuts may not be possible.
Driven higher mostly by gas prices, the core and overall PPI rose 0.7 percent and 1.1 percent, respectively, during January. Recent declines in spot prices for natural gas from over $10 per MCF to under $5.50 per MCF should become apparent in coming months.
Additionally, consumer sentiment data from the University of Michigan showed another drop in confidence: The index declined sequentially to 94.7 from 98.4 during the past month. In recent testimony, Alan Greenspan expressed his concern about the impact of eroding confidence on the economy. It is worth noting that, although confidence has been hard-hit, the index remains at levels normally found where the economy is enjoying rising levels of output, earnings and stock prices.
Adding to the selling pressure on Friday was negative news from Nortel Networks regarding its outlook for growth this year. The company reduced revenue-growth expectations and lowered earnings forecasts due to delays in orders from service providers seeking to utilize spare network capacity before initiating new orders for equipment. Given the large build-out of networks during the late 1990s, it is not surprising to see some consolidation at this point. As network usage increases, however, I expect spending to return to this sector.
While no two industries are exactly the same, the problems facing the networking sector are not new. Large capacity build-outs followed by falling unit prices and volatile stock prices are common among manufacturers of PCs, semiconductors, storage devices, semiconductor equipment and other types of component manufacturers. For semiconductors, the boom-bust cycle has been repeated several times during the last decade, but great wealth was created for investors who stayed the course.
Since the dynamic of technology absorption by the global economy continues today, I believe that global investment for technology will reaccelerate excess inventory and capacity is again worked off, demand continues to rise, and pricing firms.
On a separate note, the advance/decline line for NYSE-traded stocks has moved higher in recent weeks as more new highs and fewer new lows are achieved by most companies.
Given our forecast of improving fundamental conditions in the economy, rising spending and lower inventories, we are maintaining our year-end price targets of 1,650 on the S&P 500 (SPX: news, msgs), 4,300 on the Nasdaq Composite (COMP: news, msgs) and 12,700 on the Dow 30 (INDU: news, msgs).
-- posted by Rande
» bullrun - No update
I see Joe didn't bother to update his weekly market commentary. I'm waiting for the day that Gruntal cans this clown. He and Tom Galvin, they're the worst. We're in a period of slow growth, we're in a bear market, and Joe calls for a 4300 nasdaq this year. Thats a 70% gain from where we're at. Any idiot can see this isn't in the works. What I can't believe is that the media still sticks a mike in this clowns face. His opinion, its no better than the average guy on the street.-- posted by bullrun
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