One on One with Alan Skrainka, Chief Market Strategist with Edward Jones
Monday, January 22, 2007
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SUSIE GHARIB: Our guest tonight says the markets have not had a serious correction for 1,100 days and 2007 could be the year it happens. Joining us now to explain, Alan Skrainka, chief market strategist with Edward Jones. Hi Alan.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Hi, Susie.
GHARIB: So, are we in the beginning of a corrective phase?
SKRAINKA: Well, no one can say that for sure because you can't time market correction, Susie. I do think it's important for investors to understand, though, that we've had some awfully good news for a long time. This market has really rallied going all the way back to 2003 without a 10 percent correction and now we're seeing only the second time since the end of 2002 that earnings are coming in below what the analysts were looking for.
GHARIB: But we had so much momentum in the markets especially at the end of 2006. What's really changed here?
SKRAINKA: Well, I think what's changed has been the earnings environment. We have had 18 consecutive quarters of double digit growth and operating earnings for the companies in the S&P. That's a remarkable unprecedented string. We have had 14 of the past 15 quarters where those earnings have beat analyst estimates. And the analysts were estimating 13 percent growth for the fourth quarter earnings and they're coming in closer to 6 to 7 percent. That's a big disappointment.
GHARIB: There are a number of Dow components that are going to be reporting this week and next week. Tomorrow we have Johnson & Johnson and Du Pont and then McDonald's on Wednesday, AT&T and Caterpillar. Do you think we are going to get a different message from this batch of earnings?
SKRAINKA: Well, I think it's going to be a mixed bag. You also have Texas Instruments after the close that looked like an apparent miss. So we're seeing the biggest weakness in the technology sector where double digit growth expectations are now zero percent growth expectations and also in energy where we're looking for a double digit decline.
GHARIB: Let's talk a little bit about the tech stocks because last week we had so many disappointments even though the earnings came out relatively well whether it was IBM or Apple or Intel. Investors were not happy with those earnings. What is the outlook for technology stocks?
SKRAINKA: Well, I think it's very mixed. Technology investors are famous for having expectations that are just too high. Look what happened last few days in Apple Computer, for example and when those expectations are not met, the stocks come down pretty significantly. So it's important to have balance and not to have too many of your eggs in the technology basket.
GHARIB: We saw that the NASDAQ composite index had some good momentum also near the end of last year. What is your outlook for the NASDAQ for 2007?
SKRAINKA: I would say it's very cautious. That's not where I would be putting money right now. I would be looking to become a little bit more defensive, a little bit more cautious but again make sure you have good balance because the mood on Wall Street can change very quickly.
GHARIB: Let's get some of your top recommendations for 2007. I know it's always hard to generalize, but for an investor who is looking for long term investments, what would be your top let's say two stocks?
SKRAINKA: Well, that's our focus is long term investments. We'd like companies that are very well managed that pay good dividends. We like the large caps versus the small caps. So Procter & Gamble and 3M are very well- managed companies that we think are attractively priced and poised for good growth.
GHARIB: I know that you have an allocation for a standard portfolio in your firm of 65 percent stocks and 35 percent bonds. Any advice for long- term investors on how to navigate through this market for 2007?
SKRAINKA: Well, it's really to pick an appropriate asset allocation that's right for your goals and your risk tolerance and don't vary it. As I said, the mood on Wall Street can change very quickly. We're off to a little bit of a rough start this year. Over the long term, stocks still should outpace bonds and so, invest accordingly.
GHARIB: Alan, before we wrap up, can you tell us your disclosures on the two stocks that you recommended, 3M and P&G?
SKRAINKA: Yes, I don't own the stocks and we don't do investment banking for those companies.
GHARIB: Thank you so much, Alan. Great having you as a guest this evening. We've been speaking with Alan Skrainka, chief market strategist with Edward Jones.
