Taking Stock Of The First Quarter
Friday, March 31, 2006PAUL
KANGAS: With this year's first quarter now ending, its time to review how the major stock averages fared over these last three months and which stocks were the big winners and losers. The man with the answers is Sam Stovall, chief investment strategist at Standard & Poor's.
And, Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Happy spring, Paul.
KANGAS: Thank you, and same to you. It was fairly decent quarter for stocks, was it not?
STOVALL: It certainly was. Certainly with the S&P 500, the more than 3 percent advance in this first quarter was actually better than the advance for all of 2005.
KANGAS: Well, let's have a look at how the other two averages in addition to the S&P 500 fared. Dow did the same, up 3.7 percent.
STOVALL: Exactly. Also taking a look at the NASDAQ we saw that that also appreciated by a near 3 percent average as well.
KANGAS: What were the major driving forces behind this upturn?
STOVALL: Well, I think basically it was the feeling that we could be seeing healthy economic growth but at the same time not experiencing an upsurge in inflation. Also, it seemed as if oil prices were moderating and as a result healthy economic news, moderating inflation, and benign outlooks for oil prices pushed share prices higher.
KANGAS: Let's have a look at the best-performing Dow stocks. The top three stocks on the Dow, led by Caterpillar (CAT).
STOVALL: Well, Caterpillar had a good run in 2005 and it appears as if investors are rotating into the industrials, particularly those that are likely to benefit from non-residential construction spending.
KANGAS: We haven't seen that good a gain from Disney (DIS) in a while.
STOVALL: No, we haven't. But investors certainly are happy with the acquisition of Pixar (PIXR) that should consummate some time this summer, as well as the release of the highly anticipated animated film "Cars."
KANGAS: And Hewlett-Packard (HPQ) did nicely.
STOVALL: It certainly did. It also knocked out Verizon (VZ) from the third position, again, a continuation of strong results in 2005 spurred by Mark Hurd's cost-cutting efforts and market share increase efforts.
KANGAS: Let's have a look at the "dogs of the Dow" as we call them. Intel (INTC), the top loser.
STOVALL: That's right. Well it appears as if AMD (AMD), Advanced Micro Devices, is nipping at its heels, but also Intel did it to itself because it surprised investors with a disappointing result in January and also seemed to confirm this trend with its mid-March update.
KANGAS: Altria (MO), you don't see that on the loss column very often.
STOVALL: No, you don't. I think some of that was profit-taking because of a good 2005, but also I think there's a little bit of concern about the upcoming resolution to the $143 billion Eggers case that should happen sometime this summer.
KANGAS: And then American International Group (AIG), we know the problem there.
STOVALL: Exactly. It's a situation where I think also a recent conference call reduced some of the clarity toward forward earnings and also raised the prospects of concerns regarding settling the regulatory issue any time soon.
KANGAS: Let's move quickly along to the big winners in the S&P 500. JDS Uniphase (JDSU).
STOVALL: JDS was a rising-tide-lifts-all-boats because of the Alcatel (ALA)-Lucent takeover situation.
KANGAS: And CIENA (CIEN) did nicely.
STOVALL: Same thing there, benefiting because investors are hoping that these companies might get taken out, as well as some cost-cutting efforts by the company itself.
KANGAS: And the S&P 500 on the downside, the two worst performers were, and we see amazon.com (AMZN) leading the way lower.
STOVALL: That's right. Well, they had first-quarter revenue guidance that was actually below what the Street was expecting, not that the company is having any problems but they just wanted to tell analysts move your sights lower.
KANGAS: And Intel showed up again for the reasons you mentioned earlier. And this is a different index. And on the upside, the NASDAQ, JDS Uniphase helping that one. NVIDIA (NVDA), too.
STOVALL: Right, NVIDIA, the high-scale graphic chip company, because of expanding markets and the PlayStation 3 that's likely to come out at the end of this year.
KANGAS: OK. And then we will have a look at the big losers in the NASDAQ 100. Sirius (SIRI).
STOVALL: Well, Sirius, a situation where probably increased competition from XM Satellite (XMSR), increased costs from marketing as well as client acquisitions.
KANGAS: And we saw amazon.com before. So that's a very nice review, Sam. Unfortunately, we are out of time, but thanks very much for being with us again.
STOVALL: Happy to be here, Paul.
KANGAS: My guest, Sam Stovall, chief investment strategist at Standard & Poor's.
