"Market Monitor"-Sam Stovall, Chief Investment Strategist at Standard & Poor's
Friday, June 30, 2006PAUL KANGAS: As we close out this year`s second quarter, it`s time to review how the major stock averages performed over the past three months and to find out which stocks were the big winners and losers. To guide us through the results is tonight`s "market monitor" guest Sam Stovall, chief investment strategist at Standard & Poor`s. Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR`S: Happy to be here, Paul.
KANGAS: How would you describe the stock market`s performance during the second quarter as we look at how the major averages did and we put them up on the board here in a moment. What did it look like you to?
STOVALL: I think it was a play in two acts. The beginning of it was the situation in which you saw some continued positive notions that the Fed was close to an ending of its rate-tightening program and that earnings were going to be on a continued uptrend. But then all of a sudden, investors started to worry about inflation again, worry about the Fed`s hawkish stance. And we had a very sharp correction that seemed to resolve itself by the end of the quarter.
KANGAS: It did for the blue chip Dow anyway, up nearly 41 points. But the others still on the downside.
STOVALL: That`s right. But it seems as if we might be experiencing a retracement of the quick correction that we saw from May 5th on the S&P 500 through June 13th, certainly now with the Fed possibly taking more of a dovish stance.
KANGAS: OK now. Let`s look at the individual winners and losers starting with the Dow`s best gainer, which as we see on the board was General Motors up 40 percent. Of course it came from a very depressed level, didn`t it?
STOVALL: Absolutely. Gm certainly got the checkered flag this quarter. We saw very good turn around because of good second quarter earnings prospects, better than expected acceptance of the buyout program and also the Tracinda announcement that possibly it would be a beneficiary if it entered into a strategic alliance with Renault as well as Nissan. KANGAS: Right, then United Tech did all right, up 9.4 percent.
STOVALL: That`s right. Good earnings trends and also a favorable article in "Barron`s."
KANGAS: And Walt Disney slipped in there with better than a two point overall gain.
STOVALL: Good movie releases such as "Cars", expectations for "Pirates 2" and also a share buyback program.
KANGAS: Let`s look at the Dow`s three worst performers. And that was led on the way down by of all things Home Depot.
STOVALL: Well, that`s right. Increased competition from Lowe`s and also investors might be skeptical about current management effectiveness.
KANGAS: Microsoft.
STOVALL: Well, Microsoft, here is the situation in which they have to delay once again the release of the 2007 Office and also Bill Gates announcing that soon he will be stepping down from day-to-day activities.
KANGAS: Right. And American International Group just can`t seem to get out of trouble.
STOVALL: That`s right. Well, with the investigations and also with the competition, it seems as if some investors worry that that is impairing their ability to right (ph) business.
KANGAS: Let`s move on to the Standard & Poor`s 500 index and look at the best performer there by far, Kerr-McGee up 45 percent. That`s an Anadarko takeover.
STOVALL: That`s right and in one day, we saw share prices jump by $20 per share, so a beneficiary there.
KANGAS: And General Motors doing an encore, this time in the Standard & Poor`s 500. Let`s look at the two worst Standard & Poor`s 500 performers. Jabil Circuit, that is down sharply.
STOVALL: That`s right. They did come in with earnings that were in line with lowered expectations, but then they said that they had even lower expectations for the full year.
KANGAS: And JDS Uniphase. STOVALL: Well, they are having challenges integrating an acquisition from last year as well as undergoing a restructuring.
KANGAS: Let`s go over and take a look at the NASDAQ performances lead by Garmin on the upside.
STOVALL: Better-than-expected earnings results because of increased penetration into the navigational device category.
KANGAS: And Expeditors International, up $12 and change for the quarter.
STOVALL: Well, that`s right, a possible coattail beneficiary of the strong results reported by Federal Express.
KANGAS: And the worst performers on the NASDAQ 100 lead by JDS again. We know the reason. And XM Satellite Radio didn`t fare too well either.
STOVALL: Well, company management indicated they thought that 2006 results would be fairly weak on retail softness and product delays.
KANGAS: Now Sam, we just have a minute left. We`ve seen where we have been. Where do you see the markets going in the second half and why?
STOVALL: Well I think again it could be another story in two parts. Where the third quarter seasonally is fairly weak and during all types of periods we see it being a flat performance versus two to four percent gains in the other quarters. But if you add in the weakness typically seen in the midterm election year, on average we see declines of about two and a half percent. So I think that after a nice little rally because of second quarter earnings results, investors might get worried once again about inflationary prospects and the Feds taking a more hawkish stance. But wait until the fourth quarter. Historically it is the best of all 16 in a presidential cycle.
KANGAS: We shall be patient, thanks very much, Sam.
STOVALL: OK, Paul, good to see you again.
KANGAS: My guest Sam Stovall of Standard & Poor`s.
