Interview: RBC Dain Rauser---Dow, Philip---Equity Strategist
>> interesting day as far as equities trading. we saw the dow, s&p and nasdaq give back the bulk of their gains today. what’s behind the market moves today, through the rest of the year, into next year? we’ll go ahead and speak with our next guest, phillip dow, director of equity strategy with rbc dain rauscher, in minneapolis, minnesota. thanks for joining us. the dow and s&p―i’m sorry, the s&p and nasdaq touched 4 1/2 year highs today and retreated. is there a signal in the market ?
>> i think we live in a world where people tend to rent stocks rather than own them and you can have the intraday referrals. best said, you keep it in context of today, see what tomorrow brings. to me, i didn’t see news that would make the market decline like it did today. we’ll have to see what happens tomorrow.
>> as far as technical levels, the dow seems to be testing the 10,800. we did close above, at 10,856, to be exact. what do you see in terms of testing that support level? >> if we break through the old march high, i think that will be significant to people but the main thing i’d convey to people as we look at the market decline in october, the immediate area ahead in terms of the economy looked pretty dark. now, with the economic reports, g.d.p., productivity, et cetera, it looks like a reasonably robust economic situation and good earnings which means probably reasonable reports for the next three to six months. the irony is things have improved fundamentally yet the market valuation generally compressed.
>> do you think the investors were fearful that the market shot up so quickly today?
>> i think by and large what you saw today was probably program trading on the upside and downside. i think, again, lori, it’s hard to just make any assumption because i didn’t see news that would have driven the market down as it went down today.
>> what fundamentals could push the dow to 11,000 at this point?
>> i think in general, just a recognition that we’ve had 10 quarters of almost 4% g.d.p. growth or in the area of 4% g.d.p. growth. 14 quarters where earnings beat expectations and it looks like we’re going into the first half of next year with double-digit earnings growth, as well, and reasonable economic reports. i think that means the market needs to catch up and in the next six months you could see as much as a 10% rally in the market . how much of that we get this year will determine how much we get next year.
>> this is seasonally a bullish time for stocks, according to stock trader’s almanac. beyond january, do you expect to see gains continue?
>> yeah, i would expect that into the first quarter, you’ll probably see pretty strong price momentum in the market . again, backed up by fundamentals. i think it’s highly likely the economy will deliver reasonable numbers and earnings will at least meet expectations, possibly beat them as they have the last 14 quarters.
>> when in your view is the best strategy for stock investing right now?
>> i think you really do need to own stocks rather than rent them, rather than buying an a.t.f. or index fund, i think you need to own companies and i think the great blue chip dividend growers are a great way to invest right now. additionally, i think technology and healthcare areas of growth are attractive and finally energy, we feel we’re in maybe inning four of the energy story.
>> how long do you think the large cap names you’re preferring will stay cheap?
>> compared to the s&p, by and large, they traded very attractive valuations. so my hope is that you begin to see people gravitate toward those names and my guess is over the next six months, those stocks could do better.
>> we’ll have to leave it there. thank you very much for joining us, phillip dow, managing director of equity strategy with rbc dain rauscher in minneapolis today. johnson & johnson is defending its bid for guidant after boston scientific made a higher offer. johnson & johnson issued a statement today saying its b.d.i. for guidant “represents full and fair value.” johnson & johnson is offering $21.8 billion for guidant, less than the two companies previously agreed upon. boston scientific stepped in yesterday with a $25 billion offer. guidant is the second biggest maker of implantable defibrillators, which help the heart beat normally. a shareholders meeting is scheduled for next year to decide on competing bids. the winner gains access to what is becoming a $10 billion-a-year market . there is another sign that the housing market in the u.s. is cooling. bonds backed by home loans to the riskiest borrowers have lost about 2.5% since september. these fixed income instruments are the fastest growing part of the $7.6 trillion mortgage market , yielding the most in two years. the rise in yields reduced the value of loans made by lenders, resulting in lower profit margins and higher rates for consumers with bad credit. traders are growing increasingly concerned that an 18-month rise in interest rates may force more than 150,000 consumers to default. we’ll check in with world and national headlines and hear the latest on the nyse-archipelago vote. stay with us.
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Listen Market briefing ---Lori (slow)
NYSE --- Greg (slow)
NYSE --- Bob (fast)
Nasdaq --- Robert (slow)
Kerkorain --- June (slow)
nyse members voted in favor of the acquisition. so the vote changes more than 200 years of tradition at the nyse. much more when we check in with our greg miles momentarily. also today, on the economic front, productivity jumps spurring a stock and bond rally. we saw strength today in energy, computer hardware, semiconductors and retail stocks. shares of pfizer, johnson & johnson weighed on the averages toward the end of the session. treasuries rose today with the 10-year note posting its biggest gain in three weeks on on the back of a report showing unit labor costs declined last quarter, suggesting inflation pressures may ease. there’s a look at the 10-year -- new york stock exchange members just approved the big board’s merger with archipelago. the chicago-based electronic exchange. the nyse says more than 95% of its members voted in favor of the deal to convert the exchange into a for-profit, public company. for the latest details, we’ll go to greg miles standing outside the new york stock exchange.
>> c.e.o. john thain breaking that news on a telephone conference call with journalists a few minutes ago here at the exchange, calling the proposed deal to buy archipelago holdings, the electronic marketplace, an historic deal. he said the approval by such a large percentage of nyse members was, as he put it, a reflection of the strategic rationale of the deal and reflected the positive outlook of the new york stock exchange as a for-profit entity. he said the deal will be final in the latter part of january, when the new ticker for the so-called nyse group, the name of the new public company, will trade here in the united states. he pointed out that this needs justice department approval and only minor hurdles to resolve with the securities and exchange commission. he said there is not any significant hurdle left. it opens a way for a deal that would make the vast majority of the members of the stock exchange rich by most american standards, they will get $5 million worth of stock in the deal. they will get $300,000 worth of cash. they can sell that stock in stocks―stages over a three-year period. john thain may decide to make a secondary offering some estimate at $1.5 billion so many members may choose to sell shares earlier if they choose. speaking earlier today with robert fagan, former vice chairman of the new york stock exchange, c.e.o. of the u.s. arm of van der moolen, european financial firm, and he is optimistic about the new public nyse.
>> you have a whole new corporate governance sector and that actually started before this administration came in but they kicked up the volume on that. through an entirely independent board, separated our regulatory function where our chief regulatory officer no longer reports to our c.e.o., but reports directly to the board so landscape has definitely changed and has positioned the nyse group to be absolutely number one in virtually everything that trades anywhere on this planet.
>> the approval by the members today will create a company with an estimated market value of around $9.3 billion, making it the second largest publicly traded exchange in the world behind germany’s deutsche boerse with an estimated market value of $10.7 billion. it will expand them into electronic trading and enable them to do potentially many acquisitions.
>> thank you. a broad rally turned into a thin rally for stocks tuesday. bob bowden filed the following report from the new york stock exchange.
>> on tuesday, the s&p finished higher and survived a late-hour pullback. the s&p had been up almost .9% but finished up just .1% driven lower on the right side of the intraday chart by computerized sell programs in the last hour of trading. before the pullback, the s&p reached the highest point in four years, and by the close, the s&p had fallen below its previous four-year closing high set late last month. overall on the s&p 500, 267 stocks finished up, 224 down and nine unchanged but it was another winning day. 11 of the last 14 sessions have been higher for the s&p and it leads the dow and nasdaq year to date, up 4.25%. dillard’s shares rose 8.5% after the company said third-quarter loss, its third-quarter loss narrowed to just three cents a share from a 23-cent loss in the period a year before. same-store sales were up. and autozone, another retailer, in their case gaining 6.67% after saying fiscal first-quarter sales rose to $1.43 billion, more than expected. news from sears holdings, buoying that retail stocks. other retailers up included linens and things and the gap. if you look at the overall s&p retailing index, on the day finished up .4%. the food sector fell. conagra foods down 2.5%. the company’s chief executive said it will take time before there is meaningful improvement in earnings. devry fell, the company that offers college degrees in business technology and veterinary care, saying undergraduate student enrollment for the fall semester dropped 2.3% from last year. we had all-time highs like united technologies hitting $54.97, and boeing tied its all-time high.
>> thank you. semiconductors helped lead the nasdaq to a 4 1/2 year high. robert gray has details on the nasdaq trading from the nasdaq marketsite in times square.
>> the tuesday morning’s productivity and labor reports were taken as inflation friendly by traders, including the trader at boston company who said that’s one of the reasons we saw a rally through much of the session. however, there were computer sell programs entering the market in the afternoon and there are two distinct legs down. the nasdaq composite touched a fresh 4 1/2 year high in the session, going as high as 2278 before pulling back, closing near the lows of the session. against led by semiconductors, s.o.x. now up 18% from october 28 to today. we saw altera helping pace gains among the semiconductors after their mid quarter update after the close monday raising their sales forecast. xilinx shares moving higher ahead of their update. intel shares closed lower by about 1% ahead of their mid quarter update coming thursday after the close. in the semiconductor group, maxim integrated products, maker of semiconductors for consumer electronics, raising its fiscal second-quarter revenue and earnings forecast, lifting that stock higher. semi equipment companies, kla-tencor at its highest level since march 2004. as far as new highs go, apple computer rose to a record high, u.b.s. raising its estimates for the current quarter and all of next fiscal year, boosting its price target to $86, the $12 increase and most aggressive on wall street. apple announcing it will start selling “law and order” and other nbc shows on the itunes video download service. teva pharmaceuticals and cincinnati financial both reaching new record highs.
>> kirk kerkorian spent nearly $2 billion buying general motors’ stock and now he may be looking for a bigger role. june grasso has a closer look.
>> kerkorian said he may seek a seat on g.m.’s board of directors after losing more than $400 million on his investment. g.m.’s board meets today and kerkorian may turn up the pressure. he’s been g.m.’s most visible investor this year building a nearly 10% stake in g.m. g.m. shares fell to an 18-year low less than a month ago, the most of any company in the dow average. auto analyst george mag lioni says kerkorian has options and one of the options that several analysts are talking about is kerkorian putting someone on the board, in particular, the name that comes to mind is jerome york, a kerkorian adviser and former chief financial officer of chrysler. back to you.
>> thank you. much more after this.
