Joe Battipaglia
- PfatPrawfit
- Rande
- Kirk
- Rande
- Rande
- SteveT
- Mark_J
- Rande
- SteveT
- JenL_2
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» PfatPrawfit - Good to see he's up front!
Unlike Brinker, Bat will take the heat.-- posted by PfatPrawfit
» Rande - Missed last week's Joe Battapaglia update:
Missed last week's Joe Battapaglia update:
There are many times in the course of market activity when numerous positive or negative developments seem to come together at the same time. We have worked through plenty of these situations in the past, and now happens to be one such negative time. The market has been sensitized and made fragile by difficult earnings announcements from bedrock companies, such as Intel Corporation and The Home Depot, which investors have relied upon in the past for earnings performance. Second, we've had the presidential debates, which may have shifted the investment landscape a little by reemphasizing the fact that the public is of two minds as to which candidate should lead the nation. Third, we have tension in the Middle East again, this time involving riots on the West Bank in Israel and the death of U.S. sailors following what appears to have been a suicide bombing attack on a U.S. Navy destroyer in Yemen. The subsequent market sell-off on October 12 reflected not only these immediate causes but also the ongoing tension that has made the Middle East an especially hot spot of late and caused another spike in the price of oil.
However, we are not changing our investment expectations, our asset allocations, our strategies, or our tactics as a result of these developments. We understand that the Middle East reached another crucial phase, but this is a different Middle East than the one we knew in the 1970s. Israel has improved its relationship with immediate neighbors such as Egypt and is working to improve its relationship with Syria. Despite recent terrible setbacks, there have been indications of progress with the Palestinians in working out domestic issues. Sacrificing this progress could hold back the peace initiative and require a reworking and a new look by all parties involved. In the long run, this could be positive. Here in the U.S., the knee-jerk first reaction to tension in the Middle East is higher oil prices and lower stock prices. Ultimately, however, we have to watch developments unfold.
In terms of fundamentals, we see the marketplace coming out of this difficult period to move meaningfully higher. Earnings season is well under way, and we expect positive announcements to outpace the negative. The presidential election will be upon us shortly, and the voters will decide what kind of leadership they want for the U.S. We expect issues with currencies, particularly those related to the Euro, to be dealt with in a coherent and strategically unified fashion. So while we are indeed watching the situation in the Middle East, we would not rush to the judgment that seven years of peace initiatives have been wasted and that the situation is likely to spiral out of control. The reaction on October 12 was reminiscent of times in the past when global events were expected to have adverse long-term effects on markets. Such reactions are normal, and unfortunately, this set of expectations comes at a difficult time for the markets, as we have had the first meaningful contraction in equity values since 1998. The 12% correction in the Dow Jones Industrial Average year to date and the 25% correction in the NASDAQ Composite look to me like full corrections of marketplace valuation. However, I believe that the market landscape is positive in general given what we forecast for economic growth, profit expansion, and interest rate cuts in the next six to nine months. The S&P 500 price-to-earnings ratio, non-capitalization weighted, is 15 times forward earnings, with 13% projected growth in profits next year coming on the heels of 18% this year, interest rates at 5.75% on the long bond, and short interest rates moving lower.
As we forecast last month, the core producer price index for September came in at 0.3% - somewhat higher than previous months but far short of anything that would suggest the beginning of a new era of escalating producer prices. While the 0.3% increase was higher than recent months, it is consistent with the pattern of occasional blips seen in recent years. The year over year rate of annual growth for the core PPI is now 1.1% - down from 1.5% last month.
-- posted by Rande
» Kirk - Re: Missed last week's Joe Battapaglia update:
In response to message posted by Rande:I wonder if Joe is on vacation this week? I didn't see him on CNBC (but I was working and perhaps just not paying attention).
It would be interesting to see if he felt we put in a bottom or could go lower. Super Bear Bartin Bigs of MSDW was on CNBC this AM (perhaps as a substitute?) and he suggested the major indexes would be flat for a year while the NASDAQ goes down to revisit 2500. EVEN BARTIN said he felt the NASDAQ would be significantly higher in 5 years.... (perhaps trying to fill Joe's big bullish shoes?)
-- posted by Kirk
» Rande - Updated Joe?
Updated Joe?
NEW YORK (CBS.MW) -- The case supporting the bull market remains intact despite nagging concerns over high energy prices, a slide in the value of the euro, third quarter earnings, uncertainty surrounding the election, and unrest in the middle-east.
Beyond these immediate issues, several important positive factors should provide the needed catalysts to help lift financial markets in the weeks and months ahead.
These factors include continued growth in both the U.S. economy and overseas, a lack of inflationary pressure at the core rate, an extended cycle of growth in corporate profits and attractive valuations.
In addition, I believe the most recent round of rate increases from the Federal Reserve will yield the desired outcome of a soft landing as is now being evidenced in the most interest rate sensitive sectors of the economy. As this process unfolds, the combination of relatively high real interest rates and an undesirably strong dollar should result in one or more rate cuts by the Federal Reserve next year.
I continue to forecast growth in the U.S. economy near 31/2 percent next year with core inflation remaining between 2 percent and 21/4 percent. In this environment, companies will continue to invest in an effort to drive down unit costs and raise margins through advancing worker productivity.
At the same time, large companies will continue to partner through mergers, acquisitions and partnerships in order to increase their presence in markets around the world while improving economies of scale at the same time. Throw into this mix gradual improvement in most export businesses and better results from the foreign affiliate divisions of U.S. multinationals and I believe that the sage is once again set for rising profits through 2001.
My initial estimate of next years profit growth is for a 14 percent improvement in S&P 500 operating earnings over this year's. This level of growth compares well with the high single digit profit growth enjoyed throughout the 1990's and should help support rising equity prices.
Recognizing that most of the major averages including the S&P 500, Dow Jones Industrial Average and the NASDAQ composite are in negative territory year to date, I would like to take a moment to address several of the bearish scenarios that have again come to the foreground of debate.
Essentially there are three. The scenarios almost always begin with an assertion that the vast majority of stocks are severely overvalued at today's prices, and that a recession, or worse yet, a recession coupled with rising inflation is just around the corner.
A Question of Values...
The bearish camp often claims that stock prices are unrealistically high and that a long period of declining stock prices is the only possible solution for stock prices to return to some hypothetical equilibrium point at much lower levels.
This valuation argument has lost a great deal of steam in recent months courtesy of this year's exhaustion of dot-com mania along with a more general contraction of equity values among some of the best loved, larger capitalization companies such as AT&T, Lucent, Microsoft and Intel to name a few. With over a trillion in market capitalization lost as the result of this year's compression in equity values the market capitalization weighted multiple of the S&P 500 has been lowered to just 22 times next twelve month operating earnings. The median S&P 500 company now trades with a forward multiple on earnings of just over 15 times - hardly indicative of speculative excess. As for P/E/G ratios which are often used to measure valuations on growth stocks, today's PEG ratio for the technology sector now stands at 1.3 times the long term growth rate - a decrease of nearly 50 percent from a ratio of 2.5 just a few months back. With these conditions as a guide, the case for excessively high multiples no longer carries much sway in my opinion.
Recession?
The recession scenario surmises that the Fed has inadvertently engineered a hard landing in which case economic growth will soon turn negative and profit growth will evaporate as a result. With regard to the recession scenario, today's trends in employment and unemployment show continued expansion of the workforce at the same time that consumers continue to increase spending faster than incomes. This suggests that both consumers and businesses (the bulk of the economy) will continue to behave as they have in the past by lifting both consumption and investment. Historically, the unemployment data, in particular, begins to show signs of weakness as recessions take hold (see Table 3). In each of the past three recessions, rising unemployment marked the start of a recession. This is not the case today. In September, for example, the unemployment rate actually dropped to under 4 percent as employers continue to hire to meet the needs of rising demand.
Inflation / Stagflation?
The quick judgment by some that inflation is on the rise and that the Federal Reserve may have also engineered a hard landing is also misguided. As I have said before, there continues to be no discernable trend toward rising structural inflation other than the erratic effects of oil, apparel, and tobacco.
In fact, other than the occasional uptick in the core rates offset by surprise declines from one period to the next, the inflation picture remains quite good. The fact remains that competition in as fierce as ever and that the processes of globalization, deregulation and competition have all served to force companies to adopt competitive pricing for their goods if they hope to grow.
So as the economy moderates and supplies of commodities such as oil gradually work their way to market, I expect that already modest price rises will become even more benign. In this sort of pricing environment, and with real short term rates relatively high, the Federal Reserve should have ample room to make full use of its policy toolbox.
While I recognize the importance of keeping vigilant for events that could weaken fundamentals, I do not share the opinion of those who suggest that the long running bull market has now run out of steam.
Instead, I believe that the worst of the correction is now behind us and remain committed to my year-end targets of 4,300 on the NASDAQ composite, 1,625 on the S&P 500 and 12,500 on the Dow Jones Industrial Average.
-- posted by Rande
» Rande - Monday morning cup-a-Joe:
Monday morning cup-a-Joe:
Monday, October 30, 2000
Weekly Perspective
For the third quarter, real gross domestic product rose by 2.7% versus 5.6% in the second quarter. The main factor contributing to the slowdown in growth was decelerating inventory investment following a strong second quarter buildup. In addition, higher imports and slower government spending also provided some drag on the results. Despite these temporary factors, consumer spending (the economy’s primary engine) continued to show signs of life. For the quarter, annualized growth in consumption rose by 4 ½% - down from 7.6% in the first quarter. This rate of growth is consistent with my expectation that the economy is easing to a soft landing and positions the Federal Reserve well to ease credit conditions in the months ahead.
One prerequisite for a more gentle approach by the Federal Reserve is for inflation to remain benign at or around today’s levels. According to Friday’s data, inflation measured by the personal consumption deflator, rose by just 2% in the third quarter and falls easily within the Federal Reserve’s expected 2 – 2 ½% expected range for inflation in the coming year. By a similar measure, core inflation measured by gross domestic purchases increased by a mild 1.9 %. With inflation remaining near this 2% level, policy makers should have little cause for concern regarding some new, chronic case of inflation. For those concerned about the effect of rising wages, last week’s data on employment costs suggests further moderation in wages paid to employees. The employment cost index rose a weaker than expected 0.9% and has now decelerated to just 4.3% measured year-over-year. Remember, what is important here is that unit costs of production fall courtesy of improving profitability and a moderate expansion of overall wages. I expect wage growth to remain modest as the economy slows and that companies will continue to invest heavily to bring about productive improvements and raise profits in a highly price competitive, global economy.
Having reviewed the third quarter data, I am maintaining my 3 to 3 ¼% growth assumption for the U.S. economy in 2001 based on continued growth in consumption, rising investment spending by business, improved export business and growth overseas. Along the way, I expect the Federal Reserve to recognize the positive effects that improved productivity, stable wage growth and a return to more normal consumer spending patterns have on both growth and price stability. Add to this reduced concern over the “wealth effect” and I believe the Federal Reserve has the right mix in place to introduce two ¼ point decreases in short-term interest rates during the next six to nine months. The reasons behind such a move at this time include:
1. the moderation of consumption growth in the U.S. from levels previously thought excessive by some members of the Federal Reserve,
2. the existence of relatively high real short-term rates in the U.S. relative to historical rates and those of many of our trading partners,
3. continued strength in the dollar relative to the euro,
4. rising budget surpluses at all levels of government,
5. rising productivity growth coupled with decelerating wage growth,
6. and the absence of any meaningful trend toward higher inflation.
Despite the recent volatility in stock prices, I remain confident that continued non-inflationary growth in the U.S. economy will help lift both profits and equity values to new highs in the months ahead and well into 2001. My earnings forecast remains for 14% growth in S&P 500 operating profits next year. I remain over-weighted in the following sectors: pharmaceuticals, financials, communication services and equipment, technology, and consumer cyclicals. I am making no adjustments to any index targets at this time. My year-end index targets remain 12,500 on the Dow Jones Industrial Average, 1,625 on the S&P 500, and 4,300 on the NASDAQ composite.
-- posted by Rande
» Mark_J - Re: Joe was interviewed tonight on NBR.
Don't ya kinda wonder when Joe will issue his next downgrade in Nasdaq year-end targets? Initially, gung ho for Nasdaq 5500. Ooops. Now, gung ho for Nasdaq 4300... Hey, I hope he's right, though. Just kinda funny to see this always-bullish-all-of-the-time type of guy issue the same blend of market comments over and over again.-- posted by Mark_J
» SteveT - As promised
Transcript of last nights interview on NBRhttp://www.nightlybusiness.org/news_acti...
10/30/00: Running With Wall Street Bull Joe Battipaglia
SUSIE GHARIB: So what's next for stocks? Joining me live here in New York is Joe Battipaglia, chief investment strategist for Gruntal and company. Hi, Joe.
JOSEPH BATTIPAGLIA, CHIEF INVESTMENT STRATEGIST,GRUNTAL & CO.: Good to be with you, again.
GHARIB: Good day to be talking about the stock market, huh.
BATTIPAGLIA: Yes indeed.
GHARIB: All right. Your targets for the Dow: 12,500 by the year end. That means we're about
2000 points away, give or take. NASDAQ,4300. You were - you've just revised this number - you were at 5500 on the NASDAQ. Still we're 1200 points away. Are you going to hit these targets?
BATTIPAGLIA: Well, if we talk about it in percentage terms, we have a 15 percent gain in the Dow Jones and a bit more in the NASDAQ. Very doable in November and December.
GHARIB: For where - where are you talking about?
BATTIPAGLIA: Well, to get from where we are now, to the 4300. And the reason why it will happen is because the earnings for the third quarter will end up being better than expected, on balance. The election will be behind us. Energy prices are understood in the marketplace, and the tone of the market is improving. Indeed, I think the worst of all fears have played out in the valuation adjustment that's occurred, and now the investors are going to look at this as an opportunity to buy the stocks that they want to own.
GHARIB: Technology stocks took this market, this bull market, on the way up. Will it lead them back up, especially, given the kinds of warnings we've gotten from NorTel (NT), from Intel (INTC), from Apple (AAPL), and now, this downgrade on Cisco's (CSCO) stock today.
BATTIPAGLIA: What technology companies provide in the expansion of the economy is fast growth in earnings. We are now going to distinguish between those with the fastest growth, those with the least quick growth, and we're going to buy them accordingly. And if you look back over the last ten years, it was either technology or health care or financials that led the market. I suspect through year-end, the financials and the pharmaceuticals might provide the best leadership; the techs will provide a strong second; and then in the new year, we'll get back to sorting them out.
GHARIB: So are these technology stocks, all the warnings we're getting, is this a temporary problem you think, or is it an indication that the economy is really slowing down?
BATTIPAGLIA: Well, there's two elements here. One is over-valuations for many of these groups, particularly, for example, fiber-optics, where the valuations couldn't be supported by the growth rates. On the other side of it is company-specific problems, having to do with component shortages, picking the wrong business segment to go after, in the case of Lucent (LU). But the combination of all those things have spooked the tech investor in the third quarter. And I think that's behind us.
GHARIB: Yeah, talk about spooking Cisco's stock today, down 5 percent. Some technicians are saying that it's broken through $50 which was the key support level. What is your view on Cisco's stock?
BATTIPAGLIA: I think the stock is still pricey relative to where the earnings are going to come in. They're doing everything right on an execution basis, but it came down to valuations. We couldn't support those high valuations, and that's why we've had this process - as painful as it's been - through this year, of correcting those speculative excesses. But now you'll notice, for example, Microsoft (MSFT) is a relatively strong performer. Intel (INTC) is building a base. Some of the computer companies, likes the Dells (DELL) for example, have also started to improve.
GHARIB: Going back to Cisco though. It's been a bellwether for the tech sector. It's coming out with its earnings a week from today. If those earnings are strong, what kind of impact might that have on the technology sector and the stock market?
BATTIPAGLIA: It should have a very positive effect on the stock, on the group, and on the NASDAQ, because here, indeed, is the bellwether, delivering on the earnings. However, you won't see the stock move towards a new high. You'll see it start to improve from here, and the broader marketplace and technology perform better because it will speak volumes about what business conditions are for technology.
GHARIB: OK. Somebody has got new money. They want to put it to work. What would you recommend at this point?
BATTIPAGLIA: A balanced portfolio approach has always worked for us.
GHARIB: Specific names.
BATTIPAGLIA: Well, we have 40 percent in technology, which would include Microsoft(MSFT), it would include Intel (INTC). We take a hard look at Telephone (T) and WorldCom (WCOM) because they have been beaten down so far. We'd also be 20 percent in health care. The big pharmaceutical names make a lot of sense, the Mercks (MRK) and the Johnson & Johnsons (JNJ). And in the financials, we'd include Citigroup.
GHARIB: OK, real quickly, we just have a few minutes. The election next week, Gore or Bush, which one would be the best for Wall Street in terms of the stock market?
BATTIPAGLIA: Well, Susie, unfortunately, the fact that we don't have a majority for any one candidate means someone is going to be disappointed. My suspicion is what Wall Street really wants is gridlock, when all is said and done. No big policy shifts, and I think that's what we're going to get in the end.
GHARIB: Well, it's been good in the last six years; maybe it will work out for the next six
years.
BATTIPAGLIA: Precisely.
GHARIB: Thank you so much, Joe. Always a pleasure to have you on the program. My guest tonight, Joe Battipaglia, chief investment strategist, Gruntal and company.
-- posted by SteveT
» JenL_2 - Joe B Interview
In response to message posted by SteveT:Thanks Steve - Just what I wanted to hear. It will be amazing if the market reaches Joe's year end targets. But like Joe says:
Well, if we talk about it in percentage terms, we have a 15 percent gain in the Dow Jones and a bit more in the NASDAQ. Very doable in November and December.
Might as well think positively!....Jen
-- posted by JenL_2
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