Second Quarter Wrap With Sam Stovall, Chief Investment Strategist at Standard & Poor's Equity Research
Monday, June 30, 2008PAUL KANGAS: Joining us now to wrap up Wall Street's second quarter is Sam Stovall, chief investment strategist at Standard & Poor's equity research. Welcome back to the NBR.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Good to talk to you, Paul.
KANGAS: When we closed out the first quarter of trading, you described it as volatile and downright ugly. The quarter certainly didn't get any better, did it?
STOVALL: No it didn't and certainly ended on a down note with June for the S&P 500 experiencing more than an 8 percent decline which was the worst June since 1930.
KANGAS: Wow. Let's look at some of the individual averages, the majors, the Dow off 7.4 percent and the S&P 500 down 3.2 percent. Not too bad there, the NASDAQ up actually.
STOVALL: That's right. Actually I think it's because we had good performances in April and May that it ended up taking away most of the swoon in June.
KANGAS: Let's move right on to the Dow's best performers in the second quarter. Not surprisingly Chevron (CVX), big oil, topped the list up 16 percent.
STOVALL: That's right. Chevron is a likely beneficiary should we see the lifting on the moratorium in drilling in the Gulf of Mexico.
KANGAS: Wal-Mart (WMT) made it in there. Why was that?.
STOVALL: Well, I think because investors believe it will benefit from the tax rebate checks as well as cash-strapped consumers that are moving to discount retailers.
KANGAS: And of course ExxonMobil (XOM) who know the reason the same as Chevron for the big gain or the moderate gain. On the down side GM (GM) by far the big loser.
STOVALL: That's right. Basically everything is hurting demand for vehicles right now, so probably continued weakness along the way.
KANGAS: American International Group (AIG), Bank of America (BAC) reflecting the weakness in financials.
STOVALL: That's right. GE experiencing securities write downs as well as management upheaval and Bank of America continued concerns about U.S. consumer credit and they're going ahead with a companywide acquisition.
KANGAS: Let's take a brighter side look and see some good gainers and certainly Massey Energy (MEE) qualified there. What's the story with Massey?
STOVALL: It's basically a coal company. And here it's good to have some coal in your stocking. In fact three of the top five performers were coal companies.
KANGAS: And Jabil Circuit (JBL), that's a high-techie.
STOVALL: High-tech company that delivered results and guidance that were better than expected.
KANGAS: OK, let's look at the losers, downside Standard & Poor's MBIA (MBI), no question why that's down.
STOVALL: Absolutely. Well, rating agencies calling into question the ability of the company to pay their obligations. And that could inhibit it, inhibit future writing of business.
KANGAS: And Washington Mutual (WM) another financial caught in the downdraft.
STOVALL: Exactly. Investors have become increasingly concerned of the company's exposure to option arm and home equity loans.
KANGAS: Let's have a look at the NASDAQ 100 winners. Marvel Technology Group (MRV), nice gain there. Why was that?
STOVALL: Again, well, here's a situation that the company recently reported results that exceeded expectations across the business lines, in particular wireless and storage.
KANGAS: And NII Holdings (NIHO). Tell us about that.
STOVALL: Well, this is a wireless services company that's focused primarily in South America and they posted better than expected recent results.
KANGAS: On the downside, the big NASDAQ 100 losers UAL (UAUA), parent of United Airlines, no question why that is down.
STOVALL: That's right. Actually the top 10 airlines in the U.S. earned about $3 billion in 2007, but are expected to post a $5 billion loss in 2008.
KANGAS: And Sirius Satellite Radio (SIRI) got in there with a 33 percent loss.
STOVALL: It sure did. And the shares are near a five-year low on continued challenging fundamentals.
KANGAS: Sam, with such a terrible quarter behind us, where do you see the markets going in the second half and which sectors might be leading it higher?
STOVALL: Paul, I think we're in a period called range-bound optimism. We have the optimism that possibly the 1270 low on the S&P 500 will be maintained, but unless we get some better catalysts to move us away from concerns surrounding oil, the economy and corporate earnings, we're probably going to be stuck in a trading range. However, if we do end up coming to a conclusion with the Santa Claus rally, it's probably because investors are breathing a sigh of relief over the recently elected new president.
KANGAS: OK, so it's not all bad news there.
STOVALL: Not all bad news, but you might have to wait a little while.
KANGAS: OK, thanks once again for being with us Sam, a pleasure.
STOVALL: As always, thanks, Paul.
KANGAS: My guest, Sam Stovall of Standard & Poor's.
