One on One with Hugh Johnson, Chairman of Johnson Illington Advisors
Wednesday, April 25, 2007
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SUSIE GHARIB: Our market guest tonight says he's pleased with the stock market's behavior because it's quote rational and not speculative. Joining us now, Hugh Johnson, chairman of Johnson Illington Advisors. Hi Hugh.
HUGH JOHNSON, CHAIRMAN, JOHNSON ILLINGTON ADVISORS: Hi Susie.
GHARIB: So let's talk about the all the excitement about Dow 13,000. Is it because it's significant because of the psychological reasons or technical reasons?
JOHNSON: Well, it's primarily psychological. It's psychological Susie I think because it's going to move the stories about the stock market from the financial pages to the front pages. I think it'll bring the fact that the market is doing well to the attention of a lot of small investors and maybe attract them to the market. So there's a kind of self-fulfilling component. It tends to feed on itself. So it's primarily psychological. It's very good news. It's very uplifting. It makes people, including strategists such as myself feel a lot better and that usually helps the market.
GHARIB: Just a few months ago in February, there was a huge market sell off. Everybody was talking gloom and doom. What really happened? What changed?
JOHNSON: Everybody got gloomy because the housing market started to fall apart, sub-prime mortgages. It looks like there was a very high level of risk in investing in the stock market. It looked like the cycle was at an end. I think since that time, we've realized the truth and the truth is, you have a economy which is slowing to I think a sustainable pace. It is indeed slowing. The growth rate of earnings is clearly slowing but earnings are coming in better than expected and I think very importantly, as a lot of companies that have been reporting surprisingly good earnings, IBM, Caterpillar, Citigroup, Boeing, have been earning lots of money from other parts of the world. Their international earnings are very good.
GHARIB: Sorry to interrupt, but if that's the case, why aren't we seeing the S&P 500 break its old high of March 2000? Isn't that the more significant index to be watching?
JOHNSON: Absolutely Susie. You take the S&P 500, the S&P 1500, the Russell 3000, broader based indexes and give you a better idea of what the market is doing. They're taking small steps forward, not big steps such as the Dow and I think they're a better reflection of what's really going on and I think the market is taking small steps forward, which reflects a slow growing economy, slow growth in earnings. In other words, it accurately reflects underlying fundamentals very well.
GHARIB: So what is your outlook for the Dow and the NASDAQ by the end of the year? Is it going to go even higher, maybe hit 14,000?
JOHNSON: 14,000 is too optimistic Susie. I think if the Dow gets to 13,500, we'll be looking back and saying this was a very good year. In other words, I think it's going to be a single digit rise in S&P 500 Dow this year. NASDAQ I think will lag the Dow and the S&P 500. It's full of technology stocks and I don't think the outlook for technology is that good. I would underweight it in portfolio, so I think it's a positive outlook but it's not a great outlook.
GHARIB: Real quickly, summer rally, yes or no?
JOHNSON: I don't know Susie. I wish I did know. I don't care if it comes in the summer or comes in the fall. I do think the direction of stock prices is up and I think all investors should keep sort of a positive structure in their portfolio, in other words, a full structure, have a meaningful allocation to equities in your portfolio because I think we have more good times ahead. They're not great times. They're good times.
GHARIB: All right. That's a good way to end this interview. Thank you so much Hugh.
JOHNSON: You're welcome Susie.
GHARIB: My guest tonight, Hugh Johnson, chairman of Johnson Illington Advisors.
