Allegiant Asset Mgmt---Stine, Brian---Investment Strategist
>> welcome back. stocks wrapped up this week trapped in a slump. there are concerns about heightened inflation and softer consumer spending. joining us to recap the week’s action and share his outlook for the weeks ahead, stock market performance, we’ll check in with brian stine, investment strategist with allegiant asset management, which manages $27 billion. brian joins us from cleveland. good evening.
>> good evening.
>> first, brian, i’d like to go the your outlook on what moved markets today. of course we had a healthy jobs report signaling inflation concerns with the fed and coming off a busy earnings week, a lot of disappointments there. what, in your view, were the key drivers for the day and the week?
>> the employment report was the big news today. the headline disappointed a little bit because it was a little below expectations. however, because of revisions to november and december, when we take that into consideration, it was basically as expected. however, the surprise, of course, was the decline in the unemployment rate that, as you mentioned, raised inflationary concerns and that spooked the market a little bit. so we had equities trade off and in particular, bonds traded off, interest rates went higher. although later in the day, actually, bonds ended up higher in price.
>> big swings in the bond market , that’s true. a lot in reaction to the federal reserve. do you think the market ‘s reaction to the jobs report, ultimately thinking what the fed will do, was appropriate?
>> probably. the equity markets gave up a little bit. what was interesting was the bond market ‘s reaction because it recovered. and what’s probably going on is we’re realizing that our interest rates are very high relative to international interest rates. we’re probably going to be seeing more buying from foreign buyers and in particular next week, of course, we have the treasury auction and of interest will be the reinstitution of the 30-year and that’s drawing a lot of excitement.
>> the last auction, if i’m not mistaken, we saw weak demand and it sent bonds down. you anticipate a much more positive response next week to the auction?
>> it will be interesting because rates have been trending higher the last couple of weeks, meaning bonds are cheaper now. the interesting part will be to see what happens thursday with the 30-year because right now, the curve is truly inverted and actually the new 30-year, if it were priced today, would have a lower yield than the two-year so it will be interesting to see if enough buyers come in given that rate structure.
>> let’s pick back up on equities. we’re in the midst of the fourth-quarter earnings season and big names have disappointed. this week, monday, google shares have had a rough week. other big names in many industries. what is your outlook on earnings? are you disappointed so far?
>> no, actually, i’m fairly positive. while the headlines don’t look that great, they look a little gloomy, in reality, surprises have been two to one on the upside. going forward next year we see a fairly good growth rate for the economy translating into healthy earnings for 2006.
>> amazon, ebay, apple, releasing disappointing earnings results. do you have any concern about the tech industry to grow now? >> not long term. corporate america has a lot of cash and that cash has to be put to work and that should be good in those type of industries, in particular, telecom.
>> you told us you’re overweight in non-u.s. equities, specifically europe and asia. to what degree do you believe these markets will outperform the u.s.?
>> we think they can outperform for two reasons. one is, we’re starting to see a pickup in growth overseas and that would be positive for their equity markets . also, we’re getting concern for the dollar. 2005, one of the surprise stories was the strength of the dollar and we think that will reverse in 2006. a weakening dollar means investments overseas typically do well.
>> if we’re in a rising interest rate environment, we could see the dollar hold on to strength. in fact, the dollar pared its loss against the euro this week and could continue to rise if rates go up, no? >> it could short term and that’s what we’ve seen in the last week and a half or so as the dollar has rebounded from its precipitous drop since mid december. however, we are approaching the end of the fed tightening cycle so once they do finish, there’s a lot of risk to the dollar.
>> let’s talk about industries you like. i understand you see value in utilities and banking. why?
>> we do, we think interest rates are probably not going to go a whole lot higher from here and we’re relatively low in interest rates. given that, the dividend-paying stocks still look attractive, in particular, given the favored tax treatment and probable extension of that tax status so dividend-paying stocks and in particular, the bank sector, there are healthy dividends.
>> you’re underweight energy, and despite this week’s pullback, energy continues to be the s&p’s leading industry.
>> energy had a nice january but there’s a lot of risk in energy. we think there’s more downside risk than upside and we’re cautious in the energy sector.
>> as a whole or sub industries?
>> in particular, anything related to oil and gasoline because that’s where most of the vulnerability is. natural gas has plummeted from the extremes we had late last year.
>> as we close, brian, would you give me your recommended asset allocation, stocks, bonds, cash? >> we recommend being slightly underweight fixed income. we’re not negative on fixed income but we like equities and in particular, overseas’, international equities.
>> brian, we leave it there. thanks for joining us.
>> sure, thank you.
>> brian stine with allegiant asset management. would you pay $2.5 million for a super bowl commercial? some u.s. companies say they would. more than a billion americans will be watching. stay tuned to see which companies will be taking advantage. “money & sports” is next.
点击播报
Listen Market briefing--- Lori (slow)
NYSE --- Deb (fast)
Chart of the day --- Tom (slow)
disappointing results from altria group, from google, rekindling concerns that expectations may be too high. some of the leaders in the s&p 500 for the week, very few leaders, as you can see. telecom just barely eking out a gain for the week. consumer services, some of the hotel, restaurant and leisure stocks, they performed just barely with a gain. media stocks, however, were lower. we did get a lot of media earnings for the week. take a look at the laggards, because what we really did see, a lot more laggards than winners. auto and related stocks, those were the biggest drags. general motors getting a downgrade. semiconductors, they were a pretty big laggard not only in today’s session but all this week, down 3.4%. and also bank stocks. bank stocks were lower and remember this week, the fed did increase interest rates and also with today’s jobs report, we learned about wages, giving us the idea, a little inflationary, that interest rates could be headed higher once again. art hogan with jefferies and company saying the increase in wages was the piece that really speaks to the inflationary pressure. he says the pressure is that the fed does not stop in march but continues through may. he says that corporate america’s borrowing costs go up, making stocks less attractive. as you can see, one of the reasons we were definitely lower in the session. also, fed fund futures indicating a 90% chance the fed will raise the fed funds target rate to 4.75% at the next meeting, march 28. so what we’re looking at, potentially higher interest rates led the market lower. back to you.
>> thank you. today’s jobs report was positive, not only the headline numbers but deeply into the pages of the data. time, now, for our regular look at the “chart of the day,” joined by bloomberg news editor-at-large, tom keene.
>> every jobs report is different. you heard secretary chao say this is a positive report. that’s usually what we hear from her, whatever the variances. but today, even the gloomiest economists on the labor economy said, wow, this was good. and it’s not only headline numbers, the top number plus the revisions were positive. when you go deeper into the report, good, good numbers. here’s one of the obscure statistics which, for me, today, was a real bellwether. this is the duration of unemployment. how long is the typical person unemployed? there are a number of ways to measure it but there’s a single duration number, the duration statistic, that economists look at. if we go back 20 years, you can see the ebb and flows and the green arrow is the booming economy, less length of unemployment going from roughly 18 weeks down to 12 weeks and the stark reversal upwards in 2001 and then we slowly roll over and there’s noise here with the hurricane. today, we broke down. today was a big day where the duration narrowed within the report and as you heard michael mckee say in his interview, talking about the job leaver statistic, which is sort of the other way in behavioral labor economics, also showing a positive sign. all in all, just a terrific report.
>> so does this signal to an end to a tough job market ?
>> that’s an important question. the answer is, we don’t know. some economists said between the volatility of december and january, we need to see one more month really to be certain. chris low at f.t.n. financial was adamant about that, yes, this was great, but we need to see more data to get away from that hurricane-induced volatility and the holiday volatility and the warm weather volatility. as you know, there are always a lot of excuses but those are lining up, some of them today, where they really want more data going into 2006.
>> does the fed look at the statistic, the duration?
>> they look at the statistic -- that’s a good question. the fed looks at everything, first of all. it’s not just about chairman bernanke and the governors and they have a team of economists looking at all this data. what they’re really going to look at today was the hourly earnings and wage components within the report.
>> which went up.
>> they perked up. and what economists are waiting for, david greenlaw at morgan stanley emphasizes today, now the february 15th testimony of chairman bernanke will be not critically important but certainly it takes on a new importance as we listen to how he interprets a little bit of wage increase within this report. higher wages can lead to an inflation within the economy. higher inflation, maybe higher rates.
>> that was my last question, could higher wage costs lead to a change in fed policy in this case?
>> it could, a rate increase in march, maybe a rate increase in may. more economists are moving toward that 5% area, two more quarter-point rate increases.
>> that’s probably why we saw the market ‘s reaction?
>> the volatility today and the emotion that was there.
>> tom, thank you very much. moving on, it has been a very busy week for the markets . we’ll wrap up the week’s action and look ahead to next week with allegiant asset’s investment strategist, brian stine.
