Interview: Vice President of Capital Markets at American Express Financial Advisors
>> today’s stronger than expect the job growth sparks some enthusiasm on wall street, so what will drive stocks in the coming weeks? a question for our next guest david joy, vice president of capital markets at american express financial advisors. he joins us from our boston bureau. thank you for joining us. we mentioned some enthusiasm, but enthusiasm waned at the end of the day with the ups and downs of oil. are people still more concerned about oil and inflation and costs than they are about economic growth at this point?
>> well, i am not sure about that, other than to say i think it all translates into how aggressive the fed is going to be. i think that’s what’s really got people on hedge here. i am disappointed the unemployment report didn’t result in stronger action. i think it has to be because it means the fed is going to be quite diligent between now and the end of the year.
>> how, at this point, are companies being affected by interest rates? so far the fed raised rates eight times. wife gone up two percentage points, yet earnings in the first quarter,er than people expected.
>> i don’t think it’s affecting corporate earnings quite yet. rates are up, but they are still at quite low levels. you would expect to see it in some of the consumer discretionary areas, housing and oughtos. oughtos in the aggregate have been quite strong. just some u.s. manufacturers are having some trouble. mortgage rates are still quite low. i think we have further to go before you have any real economic impact from higher rates.
>> we had a rough month last month, barely went anywhere. last year you predicted the second quarter would be the weakest of the year. what you do see for the second quarter this year?
>> that remains our forecast this year. for the full year we’ve got a 3.6% growth rate with about 3.3% in the second quarter. that implies the first quarter was stronger than the estimate of the first one. the slowdown in business investment that occurred in march took us by surprise. we’ll see how that gets revised, if at all. we think the second half should be stronger than the first.
>> why that? why such a slow turnaround from this slow patch?
>> second quarter you’ve got higher energy prices beginning to kick in and begin to have an impact. we see energy prices moderating around these levels, so you absorbed that after a certain while. you also have the impact of taxes. we think tax payments have been running quite high. that falls in the second quarter of the year by and large. so once we get beyond that i think we get to an environment where consumer spending can ramp-up a little bit. i think fixed investment, equipment investing on the business side can ramp-up a little bit.
>> where do we put our money?
>> well, this is a tough market to try and pick sectors. i would say the only sector why we’ve got some unanimity is in terms of energy. you can expect volatility short run, but longer term we believe there is a balance between supply and demand. i i think beyond that telecommunications is an area we like. there are structural places taking change there because there is content on the one side driving higher revenues. i think health care is interesting, but beyond that, i think it’s a tough market to say you’ve got to be overweight or underweight. it’s more of a stock by stock-type environment.
>> a lot of times when you have a tough market people want security they go into treasuries. tough day to own treasuries today, but overall this year, hasn’t been a bat return. what about bonds?
>> no. it hasn’t been a bad return. if you look at the lehman aggregate, it’s up about 1%, at least going into today’s trading. the broader averages were down about 3% or so on the equity side. it’s been a good place to be. however, we still think the fed has room to go. we think the overnitrates will be 4%, 4.5% before it’s done. we think the 10-year note yield is going to push towards 5% and maybe up towards as high as 5.25%, 5.5%. we think between now and the better of the year the better returns will come from stocks. they are just not going to be that great in our view.
>> tell knee what we want to look for next week that will affect trading?
>> you know, if you look at the economic calendar, it’s not that heavy. i think my expectation as a result would be the energy patch is going to be an area of focus. i also think the relative strength of the dollar will be a focus, but my overall expectation is that next week is going to be a week of digestion of what we just experienced this week and maybe we turn sideways. until we get to the following week and you start to get to the inflation numbers for april, and that will give us greater insight to what we can expect out of the fed going forward.
>> thank you very much, david joy, vice president of capital markets at american express financial services. still to come, today’s jobs report may have been positive, but some economists are not convinced wages are rising. details in our “chart of the day” next.
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major indexes. dow jones industrials finished up five points at 10,345. s&p 500 zoun on the day by a little over a point, 1,171 your close there. the nasdaq up by 5 1/2 points, 1967. another volatile week in the stock market . deborah kostroun is at the new york stock exchange with more on the action as we close out
>> thanks, mike. as you are talking about a lot of ups and downs. quite a bit of news coming out. we had the g.m., the ford news and the fed. one of the things we did see for the week, the s&p 500 and the dow were up for the week along with the nasdaq. in fact, the dow and s&p 500 up fiore a third straight week. you can see the gains there. dow up 1 1/2 -- 1.5%, s&p 500 1.3% and nasdaq increase 2g.4%. take a look at the biggest gainers in the week for the dow jones industrial average. general motors gaining 15%. it is still the worst-performing stock in the dow this year. it is still down 23%. for the week the best performer. this on that news about kirk kerkorian wanting to double his stake in buying 28 million shares of the company, and even with the down grade we got from s&p 500, a.i.g. another big gainers. insurance stocks performing well this week on quite a bit of earnings news and home depot on the rise. dow lag guards for the week, you saw verizon at the bottom of the list. also i.b.m. along with general motors, one of the worse performers this year in the dow. in fact, i.b.m. at another low this week. in fact, it is down about 23% for the year. g.e. this week down 1%. cytec industries said their 2005 net income will be less than the average estimates by analysts and thomson financial survey. that stock lower. dolby laboratories said in a statement their revenue going to be less than expected. so dolby on the lower side today. middle steel rising. this is the world’s largest steel maker. they may build their first steel plant in india after meeting with officials in part of the northeast part of that country, so those steel stocks performing well. weight watchers on the rise today much this is the world’s largest chain of diet centers saying their 2005 profit will be as much as $1.98. that is about three cents more than their march forecast of $1.95. back to you in the studio.
>> deborah kostroun at the new york stock exchange. turning now to our weekly “money and sports” update, break out the mint juleps and the hats, it’s kentucky derby stein. we are joined by our bloomberg news reporter out of our atlanta news room. mike, we in new york are used to steinbrenner buying whatever it takes to buy a chape for the new york yankees. is he doing the same thing for horse racing?
>> you would think so. you would think money is no object and that would go to horse ration. unlike the $20 million yankees, bellam road, early favorite for tomorrow’s race, $87,000 is all it cost george, a bargain-basement price. noble causeway, $1.15 million. going wild, $600,000. you look at 2000 when pegasus won. that horse cost $4 million. george is shopping for the bargain base me. here.
>> another sport people are not watching lately, the national hockey league lockout and its 233rd day today. they had a couple of meetings, the unions and the league. what is going on there?
>> they met a couple of times this week up in toronto. they are going to meet next week in new york. they’ll have another meeting in toronto mid may. there hasn’t been too much news out of it except commissioner gary bettman has intimated the two sides are speaking the same language, so you have to think they are making some progress, but it certainly is slow. the national hockey league is just an afterthought at the moment.
>> any chance they are beginning to recognize they are in danger of becoming irrelevant or nonexistent?
>> when you ask a lot of people, the nhl is already nonexistent. it’s really caused some damage to the league. it’s the longest northern american sport passing baseball. it’s been a long time since they dropped the puck. as long as there are people willing to own the teams, the teams will exit and they have to come to agreement when they will start playing games.
>> malcolm glazer wants to own manchester united soccer team over at england. they are telling him to go away. the fans are going to make a boycott of saturday’s game maybe?
>> telling him to go away and not so nicely telling him to get out of town. last week they rejected a $1.5 billion takeover. people applauded that. people in london, fans of manchester united, one of the most popular sports teams in the world. essentially the game this saturday is the last home game they have. there is some organizers, some fan groups trying to organize a boycott of the game, asking people with tickets not to show up at the game. that is like asking yankee fans not to show up at yankee stadium. that could be a tough sell. if you don’t want to give up your ticket show up 45 minutes before the game and join in a protest march. we’ll have to see what happens with this one.
>> we’ll see you next week. thank you for join us. a jump in jobs. will stocks follow suit next week? we’ll take a look at today’s market action and where stocks are headed with david joy.
