Charles Schwab & Co.---Sonders, Liz Ann---Chief Investment Strategist
>> and a quick check on the trading at the chicago mercantile exchange. kevin ferry is with us. a little bit of buying after the selling we saw yesterday?
>> a good opening but unfortunately the number was probably too strong for the market right now. and we backed up a little bit since chicago came out. we want to keep an eye on 1267, 1268 at the end of the day today. the market is going to be holding better ground and we want to see it better than there. right now that is resistance and the market is backed up a little bit.
>> in terms, though, of the volume, we talked a lot about the volatility in the vix and how it spiked up yesterday. what are you seeing from that end today?
>> still more of the same. the volume strong and very loud. i would expect at the end of the month we will see good volume throughout the rest of the session. better prices on strong volume is a better situation.
>> all right. thanks very much, kevin. good luck.
>> in the meantime, our next guest is not a bear, but she is a little bit cautious on stocks, especially here in the u.s. and we spoke to her about a month ago and she had readjusted her exposure to emerging markets . joining us from stanford, connecticut is liz ann sonders t chief investment strategist at charles schwab. liz ann, tell us about the latest adjustment you have made over the last 30 days and why.
>> sure. well, we have been recommending an overweight to emerging markets for much of the past three years. we eliminated the overweight in the spring of 2004 and the same in spring of 2005 and six weeks ago we began cautious on emerging markets and told clients to take the excess profits out and went to a void for the category. don’t think the downside has yet reached the crescendo. >> what has changed in the fundamentals of these countries? it was two months ago that everybody was saying how strong the countries are, how good the economies were doing and about all the changes they have done to tunds lying economies that pushed up to the levels and some of them, in fact, should not be regarded as emerging markets anymore. what has changed to warrant this different forecast now?
>> we are seeing a ratcheting up of global expectation and as a result, foreign central banks will be to have more vigilant. what that does is raise interest rates globally and causes unwinding in the carry trade boar reing in yen to invest in other securities and with the route and commodity prices and their ties to some of the emerging markets , i think really what has happened is investors across the board, speculators, individual investors, institutional investors, hedge funds v now looked at some of the riskier trades they had on and are starting to unwind some of those. as much as we saw a lot of speculative excess drive markets up on the upside, you are seing that unwind on the downside without the fundamentals moving as dramatically in either direction.
>> what about our markets here? it looks like the mark has been searching for a bottom the last several sexes. do you think we’re awfully close to it or is there still more downside?
>> i think there is still more downside. i don’t think we had the downside baked in the cake as we do in emerging markets because there wasn’t as much speculative money that went into the markets and there is valuation support, but we had nowhere near the internal breadth that you would like to see in the market when it was approaching the all-time highs in the dows and not the participation that you would like to see in the rally days that we have had. there is a little more excess to be wrung out of the market and the big drivers are inflation and earnings. both are a little bit questionable right now. i think until we get clarity on inflation and earnings, we are not likely to see a real, firm bottom develop in the u.s. market .
>> are you advise anything rallies that people should sell into the rallies right now?
>> we are neutral on u.s. equities which is our official recommendation, but within the context of that, we would be better sellers in the strength than buyers into weakness at least at this point in the cycle.
>> you don’t even think the market knows what it wants from the fed right now.
>> that is the problem. we have another month before the fed meets and i think that the market could―to the extent of a pickup in inflation and either actual inflation or inflation expectations and continued strong economic growth, i think a pause by the fed in june, which i don’t think is all that likely would be viewed negatively by the market because the market would view the fed as being behind the curve. that said, i don’t think the market has built in any expectations for recession or the typical financial crisis that tends to accompany end of fed tightening. i think it’s that goldilocks scenario that is the best case, but maybe not the most likely scenario. and i think you have an extreme on either end that could possibly come to fruition and we may get a sense of those between now and june. i think the fed is in a bit of a pickle because they are dealing with short-term pickup in inflation, but also dealing with the potential for a long-term weakness in the economy because of the absence of stimulus in the last couple of months. there is the lag effect which is a tough spot that they’re in no doubt.
>> thank you very much, liz ann sonders of charles schwab. we appreciate your insight.
>> my pleasure.
>> crude oil hovering around $60 a barrel as opec prepares for the official meeting in venezuela. will or can the cartel do anything to bring down prices? we take you live to caracas for an update.
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Listen On the market---Suzy (fast)
Stock desk --- Ellen (slow)
NYSE --- Julie (slow)
Nasdaq --- Brett (slow)
>> i’m suzy assaad. u.s. chicago may index coming in at 61.5 after it was at 57.2. chicago purchasing managers index at 61.5 up from last month’s reading of 57. as for the equity market this is morning after the selloff that we witnessed yesterday, markets are recovering a little bit this morning. the dow jones is up .33%. the s&p and the nasdaq are up nearly half a percent. the treasury markets today we’re seeing them little changed with the yield holding on to 5.07% at this hour. foreign exchange markets , the dollar is little changed against the japanese yen, but it is after the weakness that we saw for the u.s. currency for most of the day. gold is down about .4%. silver and platinum with much lower as you see there. a $2 billion deal and a takeover struggle going on in the energy industry. let’s send you to ellen braitman on the stocks desk for more.
>> let’s start off with the a.d.c. shareholders not happy. a.d.c. going this to bolster the wireless communication unit. shareholders will receive 0.57 for each andrew share. it’s 30% more than the closing price yesterday for andrew. the purchase would more than double a.d.c. sales. comes as the company’s chief executive has widened the company’s product lineup as customers that include verizon spend more on fiber optic and mobile phone networks. a.d.c. shares go into today’s session up 23% in the past year. but that was after the company last year announced a one for seven reverse split of the shares. you see the share of andrew jumping over 5%. as for that other deal news, it is not as clearcut. there is a bit of a struggle going on here. mirant made an unsolicited bid for energy energy which is the second largest power producer in texas. mirant said n.r.g. rejected the proposal and declined to enter into talks. still, the shares are surging. $57.50 or 2.25 of the shares for each share of n.r.g. with no more than 50% in cash. that values energy shares at 33% more than yesterday’s closing price. a combination here, what they would do is create the largest u.s. power producer that does not also own distribution or transmission assets. keep in mind, miran energy and other power producers forced into bankruptcy after the collapse of enron. we have seen a lot of consolidation in the energy space. back over to you.
>> as you could see down from the headlines that are crossing right now regarding the situation between the u.s. and iran, it looks like the u.s. is making a new initiative to the u.s. and the u.s. will be ready to join the european talks if iran does stop its enrichment efforts. again t u.s. is ready to join the european talks with iran if they stop or bring a halt to the enrichment efforts. secretary rice is expected to announce the offer later today at the u.s. state department. while we watch that, let’s take you straight down to the market reporter. we start down at the nyse and we check in with julie hyman.
>> suzy f you check on what the benchmarks are doing after those two potentially important pieces of information from the market , that is the economic data and also the iran headline, it looks like we’re not seing a whole lot of reaction to either one. if you look at the chicago purchasing managers report, it did come in pretty much inline with expectations. what is interesting are a couple of pieces within that report. first of all, it has a prices paid component that actually declines to around 76, but keep in mind that as recently as january and february, that prices paid index was around 71 to 72, so even though it’s sill significantly higher even though it is lower than the previous month. also we had an employment piece of that report that actually improved. a couple of different components that investors will be watching today. as for what folks are talking about overall in today’s session, after the big declines yesterday, we are finding folks coming in and finding stocks inexpensive relatively today. earlier today brian sullivan talked to charles smith, the chief investment officer and he said he doesn’t think there’s been a lot of significance over the declines of the past few weeks. he thinks the double digits earnings growth will continue for u.s. corporations and he’s optimistic about that. and just a couple of examples of that today. tiffany and company t world’s second largest luxury jeweler t shares higher by 3%. fiscal first quarter profit up 8%, better than analysts anticipated on strong sales in japan in particular and monsanto coming out with news on its earnings boosting the 2006 profit forecast. a couple of examples of what smith might have been talking about.
>> not much reaction here at the nasdaq composite either. the nasdaq composite actually the rally that we have seen this morning is eroding. we are up better than a little more than four points off the high of around up 10 or 11 points earlier this morning. also here at the nasdaq investors concentrating on the relative attractiveness of stock prices relative to earnings and you can see some of the industry groups that were actually laggards this month leading the nasdaq down 6.8% so far this month are actually leading the nasdaq’s drive today with the exception of telecom, you have transportation and nonbank financial stocks leading the charge today. also today you’ve got what ellen mentioned earlier, a deal in the telecom equipment industry. a.d.c. technologies buying andrew for $2 billion. you can see andrew up 4.7%. that stock was up better than 10% earlier on. the gains mitigating right now as the investors digest the deal. also today you have merrill lynch cutting the price targets on two large cap stocks here at the nasdaq. cut its price target on google to about $490 from $540 per share. and the price target on ebay brought down to $44 a share from $51 a share. and that’s it from here. back to you, suzy.
>> thank you very much, brett. coming up next s the market slide this month justified? we’re going to insights from liz ann sonders. we will find out why he’s turned a little more cautious these days.
