Focus on earnings
Interview: Banc of America Capital Mgmt.---Young, Steven---Equity Strategist (slow)
>> welcome back. as deborah mentioned from the big board, the markets turned lower today and stayed there. the dow jones industrial average down 30 points to 9582. the s&p 500 lower by five. and the nasdaq come poe sitsdz, just about 20 points lower, closing out the week at 1865. big board volume, 1.4 billion shares. 1835 stocks dropping, 1358 rising. similar numbers at the nasdaq on just under two million shares trading hand. the wilshire 5000 down 45 points at 9983. bonds, the 10-year note up 22/32, yielding 4.23%. the two-year up a quarter point, and a quick look at currencies on the day, see how the dollar fared. we’ve heard from more than 12 s&p 500 companies so far. that’s a bitsd more than half. according thomson financial, 65% of those companies have exceeded the analyst forecasts for the quarter. fourth quarter growth is projected to accelerate, yet some investors say this year’s gains may not be sustainable, even with those growth rate intact. steve young is chief investment strategist at bank of america capital management. he is in st. louis to join us and talk about the earnings we’ve seen and what is ahead. welcome.
>> lane, how are you?
>> very well. good to talk to you. let’s talk about, first of all, your evaluation of the quality of earns we’ve seen so far. have they been up to snuff or as bad as the markets seem to be telling us they are?
>> i don’t know if the market is really reflecting any significant disappointment in earnings. if you look at the previous peaks in this market, i think that the market is essentially sensitive to valuations. and we got to the point where we did, back in january, where we did in june, again in september, and last week valuations were pushing 18 times earnings and the market is just hesitating that there. i think investors are sensitive to valuation and that’s perhaps why the markets pulled back from its highs justs a week ago.
>> these are people who have been burned in the past and see where the stock is headed especially when it comes to nasdaq and technology stocks .
>> perhaps they’re realizing that we’re in the recovery phase. this is when things like earnings and the economy is accelerating at its fastest pace, this third and fourth quarter, and perhaps they’re looking into 2004, and that that acceleration is just going to tail off. we’re going to see solid earnings growth in our estimate for 2004, just not the pace we’re experiencing right now in the third and fourth quarter.
>> what are you hearing from the c.e.o.s and c.f.o.’s as far as a broad look in terms of forward guides answer right now?
>> i think you’re still hearing some hesitation. in some cases you are hear ago few more positive indications looking forward, but then, again, others are actually making cautionary comments about the future. i think, you know, all tolled, it is essentially still a mixed signal, but you have to look at the actual numbers and what they’re reporting and they’re coming in higher than anticipated. in fact, higher than the normal surprises that we’re seeing for the quarter. so, i think these real numbers that are coming in really are reflected in stronger stock opportunity going forward.
>> how are they doing it? still doing it from cost cutting or is the growth coming from revenue growth for the vast majority of companies that are beating expectations here?
>> yeah. i think you’re starting to see revenue growth, which we haven’t seen in the last several quarters. you can only cut costs so much. we’ve already seen inventories really cut to the bone for a number of months, inventories have been down, down, down. there will be a point where you can no longer cut inventories or costs and as revenues start to grow, that’s why we’re misic about things like employment and a sustainable economic recovery. it is time for sustainable grothse and not just cost cutting.
>> what’s it like industrywise, if you can be that broad about your picks here going forward, what sense do you have about which industries are going to perform well as we head into the new year?
>> sure. well, we’ve already seen those industries that are sensitive to the economy doing very well and it makes sense. we are in the recovery phase. so, for a while longer, we may see technology, consumer discretionary, industrials, materials, the same ones that have been performing may still have some legs to it.
>> even with the nasdaq up 39% year-to-date, technology still shows signs of strength there going forward?
>> ill think as we’re in this acceleration phase, i think as the market ralliss, you’re still going to see technology perhaps lead the way. i think that that may come to an end as we go into 2004. you’re going to get more into a post-recovery environment where perhaps those that are most sensitive to the economy, the ones i just mentioned, will pull back relative to the others that are a little less sensitive to it.
>> expect any surprises from the feds coming up at their meeting?
>> no, we really don’t. probably just status quo, still a commitment to long―low interest rates. probably no real signal as to when they might increase. there might be a few more positive words in there with regard to the economy. but really status quo, things really holding steady through the end of the year.
>> steve young, thank you very much.
>> my pleasure.
>> chief investment strategist at bank of america capital join us. now weyerhaeuser says profit surged more than six times from a year ago. the world’s largest lumber company benefited from a stronger housing market. you needs woods to make houses. a look at investor reaction when we return. stay with us.
