One On One With Jeffrey Kleintop, Chief Investment Strategist with PNC Financial Services
Tuesday, May 30, 2006
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SUSIE GHARIB: Our guest tonight says investors should be happy about the recent volatility in the markets. Joining us now, Jeffrey Kleintop, chief investment strategist with PNC financial services. Hi, Jeff.
JEFFREY KLEINTOP, CHIEF INVESTMENT STRATEGIST, PNC ADVISORS: Hi.
GHARIB: So tell us why investors should be happy about these volatile days we`ve been having recently.
KLEINTOP: Well, it`s certainly been kind of an unhappy day for a lot of investors today but you know what? We`ve got a very short-term market focus here. The Fed`s kind of given that to us here with their very data- dependent view. But if you step back from the short term and think about it in terms of the long term, we`ve been telling our investors all year the market was likely to follow a pattern, that pattern being a midterm election year pattern. Strong first quarter, second and third quarter in the summer months essentially giving back those gains we got in the first quarter. The good news is followed by a fourth quarter rally. I think that pattern will persist and give us a fourth quarter rally this year, but not before a bit more volatility this summer.
GHARIB: So how should investors take advantage of that?
KLEINTOP: Well, I think it`s great opportunity to tactically make some changes in your portfolio. If you`ve been overweight small cap stocks, if you`ve been really running with the materials and the energy sector that have really been driven by a lot of the price gains we`ve seen lately, I think the Fed`s putting an end to that, now`s the time to make some changes, capitalize on some of this weakness, take some positions in some stocks and certainly the stock market itself here as it`s pulled back, a great opportunity to reposition yourself to benefit not only in the second half of this year but over the next three to five years as well.
GHARIB: As we reported, one of the big news items today was that Henry Paulson of Goldman Sachs is going to become the new Treasury secretary. Do you think that he`ll have any impact on investor sentiment?
KLEINTOP: I do. I think so. You know, Wall Street is known for caring a lot about capital flows and not just trade flows. With the prior two secretaries were very focused on trade and sort of old line manufacturing type businesses. Now with someone from Wall Street, a return of focus to the capital flows comes into play. That means keeping the flows coming into the U.S. and the U.S. Treasuries. That might mean a more stable U.S. dollar and better news on interest rates. Perhaps they won`t be rising as much in the future as what some people might have forecast just a few weeks ago.
GHARIB: So, Jeff, what stocks are you recommending to your clients to buy and invest in, given the pattern that you`ve been talking about? Specific names.
KLEINTOP: Specific names, I think stocks in the tech sector like Corning or Cisco Systems as we`re seeing more of this infrastructure laid out as a lot of the telecom companies roll out their video services, they`re going to need to invest in a lot more infrastructure to do that. These businesses by the way are unit driven, not pricing driven. I think the Fed is putting an end to the pricing driven gains in the materials and the energy sector. So let`s look to technology and perhaps the health care sector as well, also very unit rather than price driven. Stocks like Johnson & Johnson or Wyeth are well positioned to benefit from the coming environment.
GHARIB: Do you own any of these stocks or does your firm have a financial relationship with them?
KLEINTOP: Yes, we own them and recommend them to clients. We don`t have a financial relationship and I do own them myself.
GHARIB: And what about GM which, General Motors which today really took a hit on an analyst downgrade. What`s your view on General Motors?
KLEINTOP: The auto industry is still in dire straits. They`ve got major problems still with regard to pricing. They`re at a cost disadvantage to the imports. I think we`ll continue to manufacture cars here. I`m not so sure that GM and Ford are going to be those manufacturers. So I think there`s still some more risk here although a lot of the pension issues are now at least beginning to be addressed and maybe fade into the background. It`s really the business issues on the cost side that these companies are still facing and still present a major challenge.
GHARIB: OK, Jeff, thanks for all the good information. Glad to have you on the program. We`ve been speaking with Jeffrey Kleintop, chief investment strategist with PNC financial services.
