One on One with Alan Skrainka, Chief Market Strategist at Edward Jones
Monday, May 12, 2008
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SUSIE GHARIB: Our guest tonight says the U.S. stock market is already in a recovery phase. Joining us now to explain, Alan Skrainka, chief market strategist at Edward Jones. Hi Alan, nice to see you again.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Hi, Susie.
GHARIB: Let's start by getting a better analysis from you and explanation. What do you mean by recovery phase in the stock market?
SKRAINKA: Well, you know, Susie, the market leads the economy. It's not the other way around. So while we're looking at bad news in the economy today, I believe the market is starting to anticipate better news in the economy down the road. Six to nine months it's likely that the recession is going to be behind us. It's likely the credit crisis is going to be behind us. And the market is up a thousand points off the bottom. That tells us that the market sees better news ahead.
GHARIB: You heard at the start of the program Jamie Dimon of JPMorgan Chase predicting a tough recession going forward. Let's say that that prediction, that forecast is correct. How would you revise your forecast for the markets?
SKRAINKA: Well, we wouldn't revise it. You know, if you look at the last 11 recessions, on average they last about 10 months. So let's say this one started in January; that would mean it is over in October. And typically the market bottoms out about five and a half months into that recession. So that would be mean the month of May which is of course this month. See the market does reflect a lot of the bad news with financials down 38 percent, consumer stocks down 26 percent and now it's starting to rally anticipation of the fact that the economy is likely to look better next year.
GHARIB: What about earnings? Let's talk about that. Again, a lot of companies in corporate America have been warning that the upcoming quarters are going to be rough quarters. We heard FedEx recently saying that its fourth quarter is going to be a tough quarter. That is a proxy for the economy. What is your reaction to that? I mean won't those earnings weigh down on stocks?
SKRAINKA: Well, of course the first quarter was tough for financial companies. It was better for other companies. It is going to be a little bit of a rough second quarter. But the second quarter is almost over. I think the market is starting to look forward to maybe the fourth quarter of this year and the first quarter of next year and sees a pretty good earnings recovery. Keep in mind the rest of the economy has performed remarkably well in spite of these dual hits from real estate and higher oil prices.
GHARIB: And yet we are still seeing a lot of volatility in the markets. We're seeing a lot of cash on the sidelines. What do you think it's going to take for investors to feel comfortable about putting new money into the markets?
SKRAINKA: Well, ultimately it will be better economic news but the fact that there is so much cash on the sidelines is bullish. This is the second large -- the highest peak in terms of the money market assets as a ratio of stock market value telling us that there is a lot of fear in the market. It is also only the third time in the last 20 years when Americans have been net sellers of U.S. stock mutual funds. The previous two times were great buying opportunities for long-term investors.
GHARIB: All right, so let's say that there is an investor who wants to put new money into the markets. What would you recommend? Where are the areas that will grow on the long-term basis?
SKRAINKA: Well, instead of trying to guess this sector versus that sector, the key is really to build good balance in the portfolio. Stick with quality stocks, bonds and mutual funds so that if the recession is worse than one might expect, your portfolio will hold up relatively well. Go easy on the international side because a lot of the performance has been due to weakness in the dollar. So have a healthy equity position, good diversification, good quality and then be patient because we'll get through this problem. We always do.
GHARIB: So do you want to name two, three stocks that are on the top of your buying list right now that you are telling your clients to add to their portfolio?
SKRAINKA: Well, of course most folks should stick with professionally managed money. But if you're going to build your own stock portfolio, consider dividend paying stocks that have good, healthy businesses overseas. Companies like 3M, Procter & Gamble, Cisco, I would also suggest an American Express looks attractive with all the worries about consumer spending.
GHARIB: All right, do you own any of these stocks or do you have any other disclosures to tell us about?
SKRAINKA: No, not at all.
GHARIB: All right, Alan thank you so much for coming on our program.
SKRAINKA: Thanks, Susie.
GHARIB: My guest tonight, Alan Skrainka, chief market strategist at Edward Jones.
