One on One with Joe Battipaglia, Chief Market Strategist for Stifel Nicolaus
Monday, July 21, 2008
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SUSIE GHARIB: Joining us now to talk more about today's market developments, Joe Battipaglia, chief market strategist for the private client group at Stifel Nicolaus. Hi, Joe.
JOE BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS: Susie, hello.
GHARIB: What do you make of these sell-offs in after-hours trading of American Express, Apple Computer and Merck? Are these company-specific, or is there a bigger message here about what's going on in the market?
BATTIPAGLIA: I think there is a bigger message. In the case of American Express, the consumer recession is spreading out now into the credit card arena. And even though American Express is supposed to have the best customers, they are seeing loss provisions rise as customers become more delinquent. In the case of Apple, in the case of Merck, too, particularly Apple though, the earnings for the fourth quarter, the next quarter up for them is going to be more difficult. And of course, profits now are what's sustaining investors' enthusiasm for stocks. And so, any disappointment like that is going to bring pressure to bear on these companies, and we still have the lingering effects of the credit meltdown that is far from over. And this is why we have the kind of volatility we're seeing.
GHARIB: There was a lot of hope in the markets last week that maybe the worst was over. What's your view on the outlook for the markets?
BATTIPAGLIA: Unfortunately, it's going to take a lot longer for the credit contraction to complete its course, for housing prices to stabilize, and for the consumer to gain their bearings. In the meantime, we're dealing with falling employment situation and an economy that's become quite sluggish, which puts the profit picture in jeopardy. And add to that mix the simple fact that policymakers are trying very hard to forestall market forces in every respect. It's made it much more difficult and dangerous for investors. So these rallies we're getting from false bottoms tend to feel very good, but they are also short lived. And I think we're going to continue that pattern for much of the rest of the year.
GHARIB: So should investors sell into the rally? It sounds to me like you're saying thec doesn't work in this kind of market.
BATTIPAGLIA: The good news to come out of this, of course, is that risk is returning to the marketplace and returns are rising. For example, high-yield bonds are now paying investors substantially more than they did a year ago. The same can be true of real estate investment trusts. As far as the stock market generally, the multiple against earnings and cash flow has been coming down as we've had the sell-off. And as all profit contractions go, somewhere out there, perhaps towards the latter part of this year into next year, investors will start to sniff out the next decent opportunity for equities and stocks will rise. So what you've got to do here is focus on quality growth names domestically and internationally. Stay away from the late cyclical companies. I think energies and industrials have had their move now, and now it's time to focus on growth companies, health care, defensives names, and ride this out.
GHARIB: And you mentioned overseas. Are the markets overseas better for investors at this juncture?
BATTIPAGLIA: No. Once again, it's a situation where you need to look region by region and country by country. Asia has enjoyed the growth of the United States as a net exporter. They are now suffering through the slowdown in the United States. So China is a place to stay away from for now. But Brazil, having a dynamic domestic economy, continues to show robust growth at reasonable valuations. And Germany, as a centerpiece for the European community, seems to have the right balance on a longer-term basis. So you want to pick your spots very carefully internationally.
GHARIB: You've got to be very selective. OK, Joe, thank you so much for coming on the program. We appreciate that.
BATTIPAGLIA: My pleasure.
GHARIB: My guest tonight, Joe Battipaglia, chief market strategist for the private client group at Stifel Nicolaus.
