"Market Monitor"-Ashwani Kaul, Director of Research for Thomson Reuters
Friday, December 12, 2008PAUL KANGAS: My guest "Market Monitor" this week is Ashwani Kaul, the director of research for Thomson Reuters. Ashwani, welcome back to NIGHTLY BUSINESS REPORT.
ASHWANI KAUL, DIRECTOR OF RESEARCH, THOMSON REUTERS: Nice to be here again, Paul.
KANGAS: Were you impressed by the stock market's resilience today in the face of the Senate's rejection of the auto rescue bill and the story of Bernie Madoff's alleged massive fraud?
KAUL: I mean absolutely. I think we are finally seeing some resiliency in this market. We've tested the lows. We've gone below 8,000, which seemed to be kind of the bottom point where everybody is kind of focusing on that. We've tested those. We've crossed through that. So I think we've kind of built some resistance and I think today is just another indication that there is some resiliency in this market and I think in the next nine to 12 months, we should be in for some good upside in the equity markets.
KANGAS: So you see these things as signs that the market may have put in a major bottom just around the 8,000 level?
KAUL: I think so. I mean if you really look at the news today that came out, I mean it's pretty damaging news and the market's pretty much held up all day. They were positive and then they turned negative and then they turned positive at the end, so it's a good indication. This is some pretty bad news -- especially the Madoff scandal.
KANGAS: Right. Now, you do a lot of research on corporate earnings. Give us some of the sectors for which your projections look good.
KAUL: There are two only sectors really that we expect in positive territory for the fourth quarter at Thomson Reuters First Call. We're looking for health care and consumer staples to lead the way in terms of earnings. All other sectors are projected to be in the negative territory. So health care and consumer staples are the two sectors.
KANGAS: What are the most dangerous sectors to avoid?
KAUL: The consumer discretionary -- anything related to consumers. Financials is going to be a hot spot for the fourth quarter, but it's not going to be as bad as the fourth quarter of last year which was really, really a rough quarter for financials -- the worst on record at Thomson Reuters First Call. So we really expect consumer discretionary financials to really come under pressure again for this fourth quarter.
KANGAS: Now the last time you were with us in July, you liked the high-tech sector and it had good days and then bad days and now it looks like it's perking up again. What do you think?
KAUL: I think technology, from an earnings standpoint has held up pretty well. It's one of the few sectors that really has not seen a precipitous drop. We're looking for negative earnings for the fourth quarter. We had a strong fourth quarter of last year. So we're not dealing with favorable comps here and if you look at the global macro-economic environment, I mean for technology to really hold its own for the next - for the last four or five quarters is actually pretty remarkable, so we're expecting negative earnings for the fourth quarter. The good news is next year technology is looking for flat growth, so that tells me that the tech story is not as bad as everybody is putting it out to be.
KANGAS: How important is the fate of the auto industry in your earnings research?
KAUL: It's pretty right on. If you look at consumer discretionary, the autos make up a big chunk of earnings in consumer discretionary and then the secondary market, which -- which the auto makers help, the automotive parts dealers -- the businesses around the autos. I mean, a complete shutdown in the American auto industry will have an impact on the equity markets and earnings as a whole, to be frank with you. Whether it's the right move or not the right move, that's for Washington to decide, but definitely from an earnings standpoint, a bad Detroit is bad for the bottom line for corporate earnings as well.
KANGAS: I know you don't recommend individual issues on air with us - - or anyone else, for that matter -- but do you have any foreign markets that look promising -- better than the U.S. market?
KAUL: There are a few markets like Australia that's looking for a strong '09. Even the Indian equity markets from an earnings standpoint are poised to do well. Some selective Asian markets are going to do well. European markets are kind of like the U.S., kind of trending down, but there have been some bright spots around the world where frankly, the equity markets hasn't seen that precipitous a drop ,although we've seen it a lot in Latin, Europe and Asia, there are some selective markets that we haven't seen that.
KANGAS: Well, I'm afraid we've run out of time Ashwani, but I want to thank you for being with us once again.
KAUL: Absolutely, any time Paul. Thank you.
KANGAS: My guest, Ashwani Kaul, director of research for Thomson Reuters.
