"Market Monitor" - 3rd Quarter Review with Sam Stovall of Standard & Poor's
Friday, September 28, 2007PAUL KANGAS: Wall Street closed out the third quarter of trading today. So, to review how the major stock averages fared and what stocks were the big winners and losers over the last three months, Sam Stovall joins us now. He is the chief investment strategist at Standard & Poor's.
And welcome back to NIGHTLY BUSINESS REPORT, Sam.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Thanks, Paul. I'm happy to be here.
KANGAS: How would you best describe the stock market's behavior over these last three months?
STOVALL: Well, I was very impressed by the market's recuperative powers. With all of the headwinds that could have held it back, it actually went down but then surged quite nicely.
KANGAS: Let's look at how the major indices fared during the third quarter. And we see nothing but gains and some pretty good ones.
STOVALL: Absolutely. Well, certainly in this quarter typically the market really just treads water and is by far the worst-performing quarter of all four. But we saw a nice 3.6 percent gain in the Dow Jones Industrial Average, a good 1.5 percent gain for the S&P 500, and a more than 8 percent rise for the NASDAQ.
KANGAS: Let's move on now to the Dow's big winners. And let's have a look at the top performer, Procter & Gamble (PG), up 15 percent. And I might remind our viewers that on your last quarterly visit with us you said that the consumer staple stocks would fare very well in the third quarter. There you have it, P&G at the top, good call.
STOVALL: Well, thanks, Paul. The old saying, when the going gets toughs, the tough go eating, smoking and drinking.
(LAUGHTER)
STOVALL: Certainly Procter & Gamble did fairly well, primarily because investors were worried that we could be slipping into recession and responded by moving into the more defensive P&G shares.
KANGAS: Well, United Tech (UTX) and IBM (IBM) also did very nicely.
STOVALL: United Tech did well, probably because of the tailwinds from the weakening U.S. dollar and their overseas sales. And IBM did well because of their software division, which represents more than half of their revenues, also recent acquisitions have begun to pay dividends.
KANGAS: On the downside in the Dow, Home Depot (HD) has the worst showing among the 30 stocks, and down 17.6, followed by Wal-Mart (WMT), I guess we know the story there.
STOVALL: Exactly, continued fallout from the still-weakening housing market.
KANGAS: Right, and Citigroup (C) did not fare too well, down 9 percent.
STOVALL: No. They were squeezed by the credit crunch also. A lot of financial companies were hit in this third quarter.
KANGAS: All right. Let's have a look at the board of the Standard & Poor's 500 best winners. Juniper Networks (JNPR) right at the top.
STOVALL: Well, Juniper benefited from a demand for bandwidth around the world fueled by the explosion of video content and applications on the Internet.
KANGAS: And what brought Hilton Hotels (HLT) up nearly 39 percent?
STOVALL: Well, it certainly helps when you have a very good takeover offer by the Blackstone Group (BX).
KANGAS: OK. There you go. On the downside Standard & Poor's 500, Tenet Healthcare (THC) topped the list.
STOVALL: Well, the uncompensated care went from 11.4 percent of revenues to 12.7 percent, and as well there was increased liquidity concerns for the company.
KANGAS: And of course the subprime woes took their toll on Countrywide (CFC), down almost 48 percent.
STOVALL: Certainly did. And a lot of the concern as to how long this will continue.
KANGAS: All right. Let's turn over now to the NASDAQ 100 best gainers. Leading the way, Wynn Resorts (WYNN), up almost 76 percent, what goes on there?
STOVALL: Well, you and I both had the same pun of this being a "Wynn-er" situation. Share prices jumped on strong second-quarter earnings primarily because of the Wynn Macao facility, which opened in 2006, and expectations of additional Macao properties in 2008.
KANGAS: OK. And Intuitive Surgical (ISRG) did very nicely too.
STOVALL: That is right. Shares have risen on strong placements and higher selling prices for their da Vinci Surgical Systems.
KANGAS: The big loser on NASDAQ, 100, Akamai Technologies (AKAM), down about 41 percent.
STOVALL: Well, this company which improves the deployment of application across the Internet has been experiencing increased competition and mounting pricing pressures.
KANGAS: And Sepracor (SEPR), a big drop there.
STOVALL: That is right. Well, early in the quarter, the company's share price fell to a three-year low amid reimbursement woes for their asthma therapy inhaler and sluggish sales for their insomnia drug, Lunesta.
KANGAS: Sam, now that we have closed out the third quarter, do you see the high level of volatility continuing in the fourth quarter? We just have about 40 seconds.
STOVALL: I think volatility in the fourth quarter is likely to be still high. However, I think that the fourth quarter could end up being like its historic norm of being the best of all four quarters and a good chance of it closing on the highs for the year.
KANGAS: What stock sector do you think will take the lead in the fourth quarter?
STOVALL: I think we will see good momentum continuing for the energy shares as the worldwide economies remain fairly strong. And also I think technology is likely to do well, posting a more than two-to-one improvement in earnings versus the S&P both this year and next.
KANGAS: How about health care? You liked that for the third quarter, didn't do that well.
STOVALL: No, it didn't. I think we are still seeing concerns about weak pipelines in the pharmaceutical area, and also with political debates going on, both sides, both parties are looking to curtail Medicare and health care expenses.
KANGAS: Sam, I want to thank you very much for joining us once again.
STOVALL: You are welcome, Paul.
KANGAS: My guest, Sam Stovall of Standard & Poor's Corporation.
