Standard & Poor's Chief Investment Strategist Sam Stovall Speaks on the Stock Slide
Friday, February 20, 2009SUZANNE PRATT: Joining me now with a discussion of today's market activity and the outlook for stocks is Sam Stovall. Sam is chief investment strategist at Standard & Poor's equity research. Sam, welcome back to the program.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Hello, Suzanne.
PRATT: I have to ask you why is it that people are selling shares of Coca-Cola and Merck if we're worrying about nationalizing banks?
STOVALL: Well, I think certainly that part of the reason why the market declined today was the worry over the nationalization of the banks, but I think also investors remember that the stock market tends to lead fundamentals, by that I mean the economy by about six months. And so what investors are indicating is that possibly this economy is likely to be weaker than we're willing to admit and that possibly the government's efforts are not likely to bear fruit.
PRATT: So what do you think would happen to the market if in fact we did nationalize at least some of the banks?
STOVALL: I think it would probably be additional fall out as the prior guest just mentioned. And I think as a result we'd probably end up breaking below the November lows for the S&P 500 and possibly push the index down between 625 and 675 on the S&P 500 in the next several months.
PRATT: Now, if we don't nationalize, do you still see the S&P 500 going back to those November lows or going even below that as you said, 650, 625?
STOVALL: I still think that that is very good possibility, certainly because again the concern about the U.S. economy. S&P is forecasting that unemployment peak out about 9.5 percent in the beginning of 2010, that the depth and the duration of this recession is likely to be greater than that, that we saw since World War II, so deeper than the '73-74 recession and longer than both the mid '70s and early '80s.
PRATT: So, how do you think investors are going to know when in fact the stock market has hit a bottom?
STOVALL: Unfortunately bear markets end only when stock prices stop falling. As silly as that might sound, the market does tend to anticipate the end of a recession by an average five months over the past 60 years, by an average of nine months for both the troughing of earns as well as the peaking of unemployment. So basically you just have to wait to see when the market has finished selling and then you get a good idea as to how far out it is anticipating that the worst of the economic data will come forward.
PRATT: So give us your best guess, so when do you think that is going to happen? When, I mean, if ever, do you think it makes sense to start buying again?
STOVALL: Well, I think we're actually getting close in both time and price. Certainly if we do head to about 700 or even below that 650 or so, then we're dealing with a 10-15 percent additional decline in the S&P 500, certainly nothing like the 52 percent thrashing that we took from October of 2007 through November of 2008. So I would tend to say, start thinking about longer term investment opportunities in the next several months.
PRATT: All right. We just have a few seconds left. Let's talk about the longer term opportunities. Where's the first place or the second place that you would go?
STOVALL: Right now I'm still sticking with the defensive areas consumer staples, healthcare, telecom, utilities, primarily because the trend is your friend until it ends. But historically I would then say that you might want to start nibbling at technology stocks, they have actually been holding up quite well. Also you might want to take a look at some of the other cyclical stocks, if their fundamental forecasts are beginning to improve as well.
PRATT: OK. I think we have to leave it there. Thank you so much for joining us this evening.
STOVALL: You're welcome, Suzanne.
PRATT: My guest, Sam Stovall of S&P.
