Transcripts

Elements & Events That Will Move The Markets

PAUL KANGAS: Investors are hoping that merger and acquisition activity will continue to lift stocks. What are the issues that could dominate trading for the next six months? Here's Suzanne Pratt with a look at what to expect.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks got off to a strong start in 2007 and many market pros are forecasting additional gains in the second half. Most believe major market indexes will end the year above current levels, even though all three have already posted solid increases so far -- 6 percent for the S&P 500 and 8 percent for the Dow and NASDAQ. Brown Brothers Harriman strategist Andrew Burkly predicts the S&P 500 will close out the year up a total of 13 percent thanks to better than expected corporate profits.

ANDREW BURKLY, MARKET STRATEGIST, BROWN BROTHERS HARRIMAN: Our read on the second quarter is that the analysts are way too low again on their earnings expectations for the second quarter. So right now they are looking for about 4 percent year over year growth in the second quarter. We think we could double that, maybe up to 8 percent year over year growth in the second quarter.

PRATT: Others say reasonable valuations and respectable economic growth will help lift stocks higher. But most are also forecasting a bumpy ride for investors. Citi market strategist John Manley is looking for double digit gains for the major averages in 2007, punctuated by big price swings.

JOHN MANLEY, MANAGING DIRECTOR, CITI SMITH BARNEY: There's no question the market has become more volatile because a lot of the players and a lot of the money is much more short-term oriented, so they react much more quickly. There are less tolerant, they are more willing to dump something that's losing or pile on something that's winning. So I think the volatility stays with us.

PRATT: A list of worries is expected to contribute to that volatility, but not rob the market of its upward momentum. Some experts say additional spikes in energy prices and a deepening of the housing market slump are among their greatest concerns. Others worry the U.S. economy may heat up too fast for the Federal Reserve in the second half.

BURKLY: I think if that were to happen, then the Fed definitely would not be comfortable lowering interest rates at that point and may actually be starting to thinking about tightening at some point.

PRATT: One additional concern for investors in the back half of this year is inflation. Experts say if higher food and energy prices spread throughout the economy, the bull run could come to a quick end. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.