Interview: Head of equity trading at Victory Capital Market
>> billionaire investor george soros, found guilty of insider trading by a french appeals court, confirming a 2002 conviction of the. the paris appeals court said soros broke insideser trading laws when he purchased shares of societe generale in 1988, knowing it was a takeover target. an attorney for soros says soros did not break american law nor french law. ron sroff said the court concluded there he did nothing wrong.
>> they concluded no laws were broken and no breach of ethics. despite that, the investigation went on. it’s important to note there were four other defendants and this was an investigation that related mainly to the other defendants.
>> sofer said soros will appeal. a bullish outlook from general electric helping boost stocks in today’s session. joining us now for what he sees for stocks is brian pears, head of equity trading at victory capital market , joining us from cleveland. if i look at the charts in the last hour of trading, i would have to say g.e. is not a barometer because stocks couldn’t hold gains.
>> stocks couldn’t hold the gains and the good news for the market , of course, is that g.e. is a bellwether company, a company that has exposure to all sorts of different business lines and what-not and you can use it as a proxy for the market in general but the bad news when it comes to using g.e. as a proxy for the market is that it’s heavily weighted―their revenue is heavily weighted towards the international side, benefiting from dollar weakness. that makes them unlike a lot of other companies that drive revenues from domestic business and whether that affected today’s selloff or not, i doubt it did, but it’s difficult to say good news for g.e., take that and extrapolate that to the market and say better times are ahead for the market . i think that’s about what we saw in the last hour of the day.
>> why did we see people sell off? it looked like an upday all along until 3:00.
>> i think there’s a couple of reasons. one, the trend has been down for a couple of weeks. i think there’s a lot of technical damage that was done to the market this week. if you look at the s&p 500, the 1180 level was a level that a lot of people were watching and we broke that level. and haven’t risen above it over the last couple of days. we broke it after the fed announcement. i also think that headed into a long weekend with tomorrow being a holiday, i think that a lot of times you see position squaring. people don’t want to take risks, especially to the upside when you’ve had a weak tape.
>> we’ve had a lot of reports about a stronger-than-expected economy with the federal reserve raising interest rates because they think growth will be reasonably strong and yet investors at this point don’t want to join the party. we’re down in all the major indexes for the year. is that going to turn around? or will we struggle throughout the rest of 2005?
>> it’s difficult right now. we have a bit of an inflation obsession right now. the two things that i think equity investors are watching closely are the price of oil, which of course would be a component of inflation, and interest rates, which will rise in response to inflation. so whether we’re looking directly at inflation numbers or derivatives of inflation, i think people are obsessed. whether that can turn around or not, i don’t know. what we’ll need to see in the first-quarter reports when they roll out in april is dramatic revenue growth from companies that are more domestically oriented to see companies take a stance on the rest of the year that’s more bullish than it appears it’s going to be right now.
>> if we’re looking at inflation and oil as a concern, what kind of companies does somebody want to look at to play for the next couple of weeks until we get the reports?
>> you know, i―it’s tough to be too creative when it comes to that. at victory, we’re overweighted oil stocks in general. we own integrated oils and oil service companies. we’ve been overweighted in those companies for a year and a half. at times, with the run up in oil and run up in those stocks, it tends to look like a bicker bet―bigger bet than it is. we see the demand for oil is consistent and there are supply concerns so we look for opportunities when oil and oil stocks dip to add to positions rather than sell off. that’s the way we’re playing it right now.
>> if we can’t get anything out of g.e. in this situation, who do you want to stay away from?
>> unfortunately, the list of who you ofnt to stay away from is pretty long. in a rising interest rate environment, most interest-rate-sensitive stocks don’t do terribly well. banks have struggled this year. utilities have had rough days. outside of that, technology has also been a tough spot. technology is always interesting because it was such an obsession for the market for the better part of a decade and now we get blips but technology stocks have been a difficult place to be, now, for the better part of a year. so different reasons for those groups but i think i’d definitely watch strait-stensative -- interest-rate-stensative stocks and technology stocks.
>> thank you very much. bob bowden will tell us why g.e. boosted its profit forecast.
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Listen Market briefing --- Mike (fast)
G.E. --- Deirdre Bolton (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (fast)
investors became optimistic about corporate profits most of the session, boosting stocks early, but then they fell off. general electric and northrop grumman boosting earnings forecasts, giving investors more confidence in the outlook for profits. some market watchers are worried about higher interest rates will ultimately slow growth, hurting earnings and stock prices. deirdre bolton has the story.
>> g.e. boosted its first-quarter earnings forecast by a penny, enough to turn investor attention toward the outlook for corporate profits. companies in the s&p 500 are now expected to see profit growth of 7.8% on average this quarter, better than what analysts forecast in january.
>> better news on the earnings front, i think that can allow stocks to move higher in the second quarter.
>> adding to the earnings optimism, yum! brands, operator of taco bell, pizza hut and k.f.c. says first-quarter profits will be better than forecast, helped by strong sales in china. darden restaurants, which runs red lobster and olive garden, saw the stock rise as much as 11%. it says 2005 net income will be 5% higher than forecast. some investors worry the pressure of rising rates will crimp the market ‘s move higher.
>> i expect q-1 results will be solid and guidance for 2005 will be maintained but with that said, i think that interest rates, concern over rising interest rates will weigh on the market and investors will be overlooking solid corporate results.
>> sears roebuck was the first windormer in the―performer in the s&p 500, falling as much as 12%. investors sold the stock rather than accept a lower price in the takeover by kmart holdings. shareholders approved the acquisition today.
>> major indexes suffered their third straight weekly decline. the s&p 500 down 4% from the high it reached march 7. for more on today’s trading action, here’s a report from deborah kostroun at the big board.
>> near the close of thursday’s trading session, we had news that could impact when trading resumes monday. a federal court jury decided that johnson & johnson’s patent for stents used to prop over coronary arteries was infringed by competitor, boston scientific. that news out late in the day on thursday. what we did see during the trading session, the dow had a little bit of a light day -- late-day selloff with exxon-mobil leading the way lower. back on february 17, much fanfare to the fact that exxon-mobil surpassed g.e. as the world’s largest company. but now that has flip flopped again. g.e. is the world’s largest company and it was going tick for tick in thursday’s session. in terms of market cap, g.e. is $2 billion bigger than exxon-mobil, g.e. worth $378 billion. g.e. said first-quarter earnings are expected to be better than expected. 37 to 38 cents compared to a previous forecast of 36 to 37 cents, g.e. citing solid growth. northrop grumman gained, the largest builder of warships. say said 2005 profits will be better than analysts expected. they said strong demand for missile defense systems, radars for combats and gains from the sale of their automotive business this past month. home sales, what we did see, a report showing new home sales jumped by the most in four years and prices climbed to a record in february. that as buyers racing to beat rising mortgage rates. we did see homebuilders gaining on the day. sears, the worst performance in the s&p 500. shareholders approving kmart’s $12.3 billion acquisition of sears in a bid to stem declining sales and fend off wal-mart stores. that combined store will be called sears holding corp. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> as we mentioned, the nasdaq held to a small gain in thursday’s session led by yahoo. robert gray is at the nasdaq marketsite with details.
>> the nasdaq composite finishing higher less than a point for the second consecutive session. going into thursday’s session, many traders and investors saying they expected a technical rebound after recent declines on the nasdaq composite. it did materialize in the morning hours but in the afternoon, volume was light and many traders and investors headed home for the long holiday weekend. freed hughes at wells―fred hughes at wells fargo saying technically it was oversold in the past few days and he expects the rebound to continue through next week. another analyst saying that the market internal measures were set up differently back in january, the last time that the relative strength index fell to these levels and he expects any bounce to be of less strength than seen in late january and we could see more down side in the near term. we’ll watch that in the coming days. yahoo was one of the strongest stocks in the nasdaq 100 today, approving up to a $300 billion stock repurchase program in the next five years. also, investments by billionaire ronald burkele boosting wild oats and pathmark. an s.e.c. filing identifying burkele―burkle as purchasing the shares. pathmark getting a $150 million investment from burkle. and taser, the u.k. home office being approving―approving the use of the taser.
>> gasoline surged to a record and crude oil rose on speculation an explosion at b.p.’s texas refinery will limit the availability of fuel when demand picks up. crude at the close was up over a dollar to $54.84 for the may the contract. gasoline hit a record at.
>> gasoline for april delivery surged more than three cents to $1.60 a gallon, the highest since gasoline futures began trading on the new york mercantile exchange in 1984. the explosion at b.p.’s texas city refinery killed 15 and injured 70. b.p.’s chief executive john brown said the company doesn’t know the cause of the explosion but that it appears unrelated to three other plant accidents in the past year. it’s the third largest refinery in the u.s. and produces about 1/3 of b.p.’s fuel in north america. energy prices seesawed today as investors consider the impact of the explosion on supplies. b.p.’s spokesperson says the commotion has not changed production much and investors are focused on the effect higher interest rates may have on oil consumption. one oil analysts says the markets are in a good position.
>> in terms of the amount of product available for the marketplace given current demand, i think the markets are comfortable but it comes back to the fact that capacity constraints and utilization is at high levels and there’s very little room for disruption.
>> retail gasoline prices have risen 46% this year as refiners pass on higher costs to consumers. the pump price for regular grade gasoline rose to a record $2.11 a gallon this week, accord to the energy department.
>> the rise in gasoline prices had do largely with the fact that crude oil prices had run up to record highs in the last couple of weeks. and clearly as you get closer to the driving season, there’s increased concern that demand will continue to pressure prices and move them higher.
>> energy analyst kyle cooper of citigroup says that gas spies are higher than they have been since 1999. he says retail gas may drop as low as $1.75 a gallon.
>> june grasso. adelphia communications, the fifth largest u.s. cable television operator, is offering to pay $725 million to settle federal fraud investigations. it would be the second highest penalty imposed by regulators. settlement talks are ongoing. the offer covers both the s.e.c. and justice department. the settlement would bring the c.e.o. a step closer to reshaping the company after the ninth largest bankruptcy in u.s. history. we’ll get perspective inside today’s market action and look at where stocks may be headed next with brian pears, head of equity trading at victory capital.
