Joe Battipaglia
- Kirk
- Rande
- Rande
- Rande
- JackSwanson
- Kirk
- Rande
- Mark_J
- Rande
- Mark_J
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» Kirk - Stock Pickers' Market indeed!
Stock Pickers' Market indeed!Great stuff from Joe, thanks Rande.
KEY: Since May, advancing issues are outnumbering declining issues by a 3 to 2 margin.
This could mean the stealth bear in nonTechnology could be ending. The good breadth is VERY healthy for the market.
Stock pickers...Jorgensen't Super-8 Portfolio is up 24% YTD! GREAT stock picking there of major name stocks... I think even Joe would be proud of the old guy! Jim tells people to buy the stock in that portfolio when they are down (much like my stock picking strategy).
-- posted by Kirk
» Rande - Yes, the broadening out of the market is a healthy thing.
Yes, the broadening out of the market is a healthy thing. Today is a good example. Not long ago (before this year) as went a stock such as Microsoft, so went "the market." But, with the DJIA currently up over 100 and the Nas up over 50, MSFT is unchanged on the day. The times, they are a-changin'.-- posted by Rande
» Rande - Monday morning cup-o-Joe:
Monday morning cup-o-Joe:
Monday, September 11, 2000
Weekly Perspective
If the futures market has it right, there will be no further rate increases by the Federal Reserve for the foreseeable future. The principal cause for these diminished expectations has been the Federal Reserve’s decision to leave rates unchanged during their August meeting. Earlier this year, I commented that the Federal Reserve would return to neutrality by the end of summer as the economy exhibits more moderate growth in response to rate tightening. I continue to expect core inflation to remain at-or-near 2% as the economy sustains growth near 4%.
At this time I believe the next meaningful action by the Federal Reserve will be a reduction – not an increase - in short-term rates. What’s more, I believe that such an action could occur before the end of the first half of 2001. The combination of low inflation, moderating consumer demand, excessive dollar strength and already high interest rates should support such an action. It is important to note that current short-term rates are unusually high relative to other periods throughout this expansion. Today, real short-term rates stand near 4% (6% nominal growth in GDP less 2% inflation using the most recent second quarter data) – this is significantly higher than the 2 ½% - 2 ¾% range typically witnessed during this economic cycle. With the exception of the emerging market crisis of 1998 when falling import prices pushed the inflation rate to 1.2% or the Savings and Loan bailout period of 1989-1990, today’s rate structure is unprecedented. Even Alan Greenspan acknowledged that real short-term rates were abnormally high during his Humphrey-Hawkins testimony several weeks ago.
Earlier this year, I concluded that there would be little room for expanding multiples until the Federal Reserve completed it’s work on interest rates. At this time, I believe that some modest appreciation in multiples is warranted and can be expected during the next twelve to eighteen months. Contrary to popular perception, valuations have not become excessive considering the underlying growth rates and profitability of U.S. companies coupled with a healthy economy and stable environment for prices.
Today, the median S&P 500 company trades with an attractive price-to-earnings ratio of 16 times next twelve-month expected earnings. The disproportionately large weighting of fast-growing technology companies in the mix, however, has skewed the popular market capitalization weighted multiple of the S&P 500. By this measure, the S&P 500 trades at 25.3 times forward-looking operating earnings. The higher multiple for technology can be explained in light of higher rates of growth and profitability (see table).
In the coming months, I expect to see a minor moderation in earnings growth relative to the 18-20% growth experienced during the first half of this year. The growth in earnings should be considerably above the 9.6% annualized growth in operating profits experienced between 1990 and 1999. The increased importance of technology in the total mix of results should have a positive impact as investment spending, particularly on equipment and software, continue to outpace the overall level of growth in the economy. As companies seek to improve overall productivity through the greater adoption of new technologies, I expect technology to continue to lift the earnings profile of the broad universe of U.S. companies.
As for oil, the OPEC nations have agreed to a 800,000 barrel per day increase in output – somewhat more than expected. While a 500,000 bpd increase was considered automatic given that OPEC’s basket of oil prices has traded above the officially sanctioned band, the additional supply should help bring oil prices closer to my forecasted range of $25-30 per barrel. As I have said before, I believe oil prices have peaked, and I am encouraged by this most recent development. It should be expected, too, that the headline CPI rate for August will be high given the increase in oil prices during the month and I would not be surprised to see some spillover effects in the “core rate” through such items as airline prices but nothing further that could derail the ongoing bull market.
-- posted by Rande
» Rande - Monday, September 18, 2000
Monday, September 18, 2000Weekly Perspective
Without missing a beat, the equity market has gone from concern over rising interest rates to a possible slowdown in earnings growth. I do not share these concerns. Instead, I believe that companies will again deliver significantly higher than average earnings growth this quarter. Today’s environment of full employment, robust investment spending, and accelerating productivity is creating an ideal environment for companies to deliver excellent bottom line results. This year’s record of strong earnings growth in the face of a half-dozen increases in short-term interest rates supports this line of reasoning. Although I do not expect earnings growth to remain above 20 percent indefinitely, it is reasonable to conclude that the positive long-term effects of globalization, innovation, deregulation and competition continue to lift the potential long-term rate of growth corporate profits in the U.S..
According to a recent survey of analysts by First Call, third quarter S&P 500 earnings are expected to rise 17.3% versus last year. This is actually an increase from the 17.1% expectation just a few weeks back. First Call goes on to suggest that since analysts tend to underestimate earnings growth in any given quarter actual growth could easily be as high as 19%. This is a very positive outlook and should help maintain very high growth rates for the full year when combined with the 23.6% and 21.6% growth in S&P 500 earnings, for the first and second quarters. One key sector driving this growth remains technology. First Call now estimates that this sector should see earnings expand by 37% versus the same period last year. My overall forecast for growth in S&P 500 operating earnings remains $61 this year and $69 next year.
Last week’s surprise drop in the consumer price index helps support my thesis that inflation will remain quiescent in the months ahead. At this time, both the consumer price index and producer price index are showing clear signs of deceleration – a notable departure from the concerns of last spring. At that time, my forecast called for a gradual slowdown in consumer spending in response to higher interest rates along with the typical ebbing of consumption that follows an extended period of growth. My forecast also called for an end of credit tightening by the Federal Reserve to become effective before the fall. Thus, last week’s report showing August CPI dropping -0.1% in the core rate (despite surging energy prices) is right on schedule. Similar readings were found in the producer price index. Moreover, the year-over-year rates of core inflation at the consumer and producer levels continue to decelerate. Year-over-year, core consumer prices are up just 2 ½% and core producer prices are up just 1 ½%. There is clearly no inflationary trend at work here. As I stated earlier this month, I believe that such benign inflation data along with relatively high short-term rates will provide the Federal Reserve enough reason to lower interest rates by the end of the first quarter of 2001. Oil prices remain a concern in terms of economic activity, but I expect stabilization to be achieved as supply catches up with demand.
So as we approach the start of the fourth quarter many of the factors underpinning the bull market are still very much in place. In just a few short months, the fear of rising inflation and higher interest rates have eased. Productivity growth continues despite being almost eleven years into an economic expansion. This increased efficiency, coupled with consistent demand, should help sustain profit growth well above historic averages in each of the next several quarters. Lastly, the market’s breadth appears to be improving with more companies turning in positive performances in terms of their stock price since the beginning of the summer’s rally. The market’s recent pullback should prove short-lived and I expect third quarter earnings to provide the needed catalyst to extend the summer’s rally into the fourth quarter and first half of 2001.
No change in targets.
-- posted by Rande
» JackSwanson - Something missing...
Anybody noticed Battipaglia no longer posts his ridiculas end of the year predictions...he called for a 5500 Nasdaq, and a near 13,000 dow. It won't even be close. Bat, he's another moron out there.-- posted by JackSwanson
» Rande - Have to take the specific prediction thing with a grain of salt,
Have to take the specific prediction thing with a grain of salt, part of the guru game. The thing I like about Battapaglia is his Big Picture perspective. Another thing is he seems to have enough confidence in himself not to do the put-down thing against the rest of the guru world. Yet to see a nasty nickname pop up anywhere in his stuff.-- posted by Rande
» Mark_J - The great news
...is that those who expected 3rd quarter earnings to be here, crushing any hopes of a "post-Labor Day back from the Hamptons" rally, were selling their shares to Joe!!!Joe says by Dec 31, 2000: Nasdaq 5500
Where are we as 9/18/2000: Nasdaq 3726
Joe probably has his rally cap on about now!
-- posted by Mark_J
» Rande - September 25, 2000 Batapaglia:
September 25, 2000 Batapaglia:
Intel’s pre-announced shortfall of it’s own revenue targets should not dampen enthusiasm for third quarter earnings overall. Nor should the warning be viewed as a threat to ongoing strong demand for technology. Leading personal computer manufacturers, Dell Computer and Hewlett Packard immediately issued statements saying that PC demand remains strong and that they should meet their own targets for revenue growth in the quarter. This is consistent with my view that investment spending on such items as network equipment, personal computers and software will remain strong as companies try to raise profits by combining improved productivity with lower unit labor costs. Improving productivity becomes even more important in this environment where increasing prices are not an option for most companies. In addition to technology, I expect to see good profit growth from the financial sector, pharmaceuticals, energy, and media companies.
Using data provided by Briefing.com, approximately 150 companies to date have warned that they would not meet third quarter expectations. This number is not out of the ordinary since quarterly warnings have ranged from 125-275 per quarter during the past four years. If transportation, chemical and automotive parts companies are excluded because of the unusual effects of higher energy prices and the Firestone tire recall, the total number of warnings drops to 130 companies – the low end of the range. Notably absent from the list of companies issuing warnings are financial companies, pharmaceutical companies, energy companies, media companies and communication equipment companies. The single largest number of warnings came from retailing sectors but this was to be expected given the ongoing moderation of consumer demand and tough year over year comparisons retailers are faced with.
In the weeks ahead, I expect to see the market take on a better tone as companies report third quarter earnings and provide analysts with greater visibility in forecasting future business conditions. In the meantime, I expect to hear little in terms of significant news since, most companies have entered or are about to enter their “quiet periods” which restricts management’s ability to discuss many business developments and quarterly results with Wall Street.
As for the Euro, I am encouraged by the positive reaction of the currency to the coordinated intervention by the major central banks around the globe last week. In the months ahead, I believe that a combination of continued support by the G-7 countries combined with an easing of monetary policy (led by the U.S.) will give support to the Euro and arrest it’s slide. Today’s high price of oil should be met with gradually higher levels of supply as OPEC, non-OPEC and domestic sources of supply are gradually enticed to market through a combination of political and economic incentives.
I remain optimistic that the problems of the Euro and the high price of oil are solvable over the coming months. The resolution of these issues can be arrived at through the coordinated efforts of the G-7 and oil producing countries. Meanwhile, the U.S. equity market should find plenty of room to rally given improving earnings of most companies and increasingly reasonable valuations. The median S&P 500 company’s price to earnings ratio still remains approximately 16 times earnings. Continued strength in investment spending should continue to help offset some slowing in consumer spending and help guide the U.S. economy to a “soft landing”. Relatively high interest rates, moderating consumer demand, low and stable inflation, and now concerns about the Euro should all combine to help the Federal Reserve gradually ease monetary policy in the coming quarters. Simply put, the environment for equities in the U.S. remains attractive based upon ongoing healthy fundamentals and more attractive valuations for most stocks.
-- posted by Rande
» Mark_J - From Fiendbear
http://www.fiendbear.com/wksum.htm"Thus, last week’s report showing August CPI dropping -0.1% in the core rate (despite surging energy prices) is right on schedule."
"Joe Battipaglia, chief analysts at Gruntal & Co. Actually the CPI core rate increased by 0.2% in August but hey this guy is so bullish he can just change the number to suit his bias. Time is running out for his persistent call for new highs for the Nasdaq Composite."
-- posted by Mark_J
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