One on One with Alan Skrainka, Chief Market Strategist with Edward Jones and Company
Monday, July 23, 2007
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SUSIE GHARIB: Joining us now with more analysis on today's market rally and where stocks go from here, Alan Skrainka, chief market strategist with Edward Jones and Company. Hi, Alan.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Good to be with you.
GHARIB: So nice move on stocks today. What is going to drive stocks higher from here?
SKRAINKA: Well, I think earnings. Inflation, interest rates are low. And they are probably going to stay. I doubt that they will go much lower. But the earnings have exceeded analyst expectations almost every single quarter for the past four years and they continue do so.
GHARIB: Now we've seen financial stocks pull back. Can the overall stock market move higher with the financial sector weakening?
SKRAINKA: Well, I think it can. A leadership does change throughout a bull market. The financials have been so strong for so long. It's somebody else's turn to take the lead. And now we see the energy stocks, industrial stocks and of course today health care stocks doing very well.
GHARIB: Given that we've seen this big run-up in stocks, are they getting to the point, are the markets getting to the point of being overheated, that we with can now see a sharp market correction?
SKRAINKA: Well, a correction could happen at any time for any reason as you know. But keep in mind that earnings have been growing just as fast as the stock market so it doesn't look like valuation is out of whack. We are just cautioning our investors that if you can't predict the next correction in the market, you have to prepare for it and the best way to do that is by focusing on quality investments and making sure your portfolio is properly diversified.
GHARIB: Now we haven't seen individual investors really participate in this market rally over the past couple of weeks and months. Are you now hearing from individuals that they are interested in getting in and investing?
SKRAINKA: Well, I know "Barron's" wrote about that this weekend, but I think they made a mistake by generalizing all individual investors because there are really two types. There is the short-term trader that the article referred to this weekend who has really been in emerging markets, commodities, real estate and other more speculative areas other than the market. The long-term investor that has long-term goals like saving for retirement and Jones serves seven million of those investors really has never abandoned this market and has stuck with it all the way.
GHARIB: You don't think that since the 2001 correction that investors have pulled back?
SKRAINKA: Well, the trader pulled back. The investor that was say the hot money, that was in technology stocks in a big way, has been so bruised and battered that in many cases he has never returned to this market. And one day he might return. That often is the case if history is a guide. And when that happens. then we are probably due for a big pullback.
GHARIB: So for long-term investor who has some new money that they want to put into the market, where would you suggest they put that money where there still room to grow in the stock?
SKRAINKA: Well, avoid the riskiest areas of the market, small cap, emerging markets, junk bonds because you are not being compensated for taking the extra risks those investments offer. Instead focus on some of the areas that have lagged like large cap dividend paying stocks here in the U.S., on the international scene developed markets instead of emerging markets and then your bond portfolio I would stay very safe sticking with only the highest rate issues.
GHARIB: What are your number one and two picks for individual stocks?
SKRAINKA: Well, for investors who want to invest in individual stocks again with that dividend theme, I would stick with some of the stocks that have lagged this rally like 3M, Procter & Gamble, Johnson & Johnson, even Wal-Mart. These are companies that are very well managed that have a great track record of growth. They are selling at very attractive prices for the patient investor.
GHARIB: Alan, do you own these stocks or does Edward Jones have a relationship with any of these companies?
SKRAINKA: No, I don't own the stocks and we don't do investment banking work with any of those companies.
GHARIB: Real quickly, just to wrap up, you seem pretty positive on the markets but what are the red flags? What are the risks?
SKRAINKA: Well, the risks of course are the fact that it has been so long since we have had a correction. It's been four years since we've had a 10 percent correction. So certainly be prepared for that. It could happen at any time. But if it does happen, that will just give you an opportunity to buy investments at a lower price.
GHARIB: All right, thank you so much, Alan for coming on tonight.
SKRAINKA: Sure, my pleasure.
GHARIB: My guest tonight, Alan Skrainka, chief market strategist with Edward Jones.
