One on One with Sam Stovall, Chief Investment Strategist at Standard & Poor's
Wednesday, October 22, 2008
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SUSIE GHARIB: Joining us now to talk more about the markets is Sam Stovall, chief investment strategist at Standard & Poor's. Hi Sam.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Hi, Susie.
GHARIB: You know, you heard in our report, so many stock experts have already said that the markets have priced in a recession. They've priced in that things are going to be tough. Given this big sell-off that we had today, is there some new twist to what is going on that we should know about?
STOVALL: Well, Susie, I think they've priced in the definition of a recession and the definition and expectations of weaker earnings, but they have yet to price in the actual magnitude. Certainly right now we're expecting to see about a 1 percent GDP peak-to-trough decline in this recession, but if it ends up being similar to what we saw in the mid-1970s, that would be a 3 percent decline and expectations of about a 4 percent shortfall in this third quarter could get worse.
GHARIB: Now, we saw the S&P 500 hit its lowest level since 2003. It's below 900. What's your forecast for the S&P for this year and going into early next year?
STOVALL: Our expectation is that we think similar to what Gail Dudack just mentioned, that we are searching for a bottom. When you look primarily to investor sentiment, you look to the fact that more than 88 percent of the companies on the New York Stock Exchange hit 52-week lows and you look at extreme levels of market volatility, et cetera, it indicates to us that we appear to be searching for a bottom. And as a result, our investment policy committee has a year-end target of 1100 on the S&P 500. Now granted that's higher than where we are now, but it implies a 25 percent decline this year which would be the worst since 1937.
GHARIB: Oh, that hurts. Ouch! You know, Sam, there was some good news today. We saw oil prices fall sharply. That's good news. We've been seeing evidence that the credit markets are thawing. Everybody was waiting for that. That's good news. But it seems like good news means nothing for investors these days. Why is that?
STOVALL: Well, I think right now investors are allowing their own worst enemies to get the better of them and that is their emotion. That basically they're selling now and asking questions later. And what we are likely to experience is the stretching of a rubber band that soon will be snapping back. If you look to the possibility of another rate cut which we see by the end of this year, another stimulus package early in the new administration's term, also oil prices that are now half of where they were just a little while ago, then all three of those items, I think, could end up stimulating overall consumer spending.
GHARIB: There was a time where investors were told this was the advice. Buy on the dips. So in a market like this when prices would come down, you'd buy. It doesn't seem like that strategy is relevant today. What is your advice to investors? What should they do?
STOVALL: Well, I think certainly at this point, I would advise investors not to be bailing out primarily because while you might look smart in the near term by having sold out your equity positions, unfortunately most investors get back in at prices that are higher than where they get out. Since we don't know exactly where a bottom is and your time horizon should be longer than five years, I would tend to say that these could be representing good buying opportunities, not levels at which you should start a selling program.
GHARIB: All right. got to be patient, I guess, right, Sam?
STOVALL: That's right, Susie. I think in the long run, you'll probably be happy for having done so and not let your emotions get the better of you.
GHARIB: All right. Thanks a lot for coming on the program. My guest tonight Sam Stovall, chief investment strategist at Standard & Poor's.
