The fundamentals of earnings
>> time warner and comcast are considering expanding and may together make a bid to acquire bankrupt cable operator adelphia. earlier today, the two reached an agreement to allow comcast to cut its stake in time warner’s cable unit. analysts say purchasing adelphia ‘s business may speed up that joint venture. the two companies say they’re exploring the possibility, but it’s early in the process. adelphia has divided cable system into seven regional groups it says will be sold at auction. the benchmark stock indexes finished the day lower as crude oil surged to a record high. joining me for insight into today’s market action is steve massocca, co-c.e.o. and head of trading with specific growth equities, joining me from san francisco. it seemed like an oil story today. how much of that is getting into the fundamentals of the market at this point to the point where we don’t react just to headlines on oil but it affects the fundamentals of earnings?
>> well, i think the often-quoted statistic that oil is a much smaller percentage of the economy than it was in the 1970’s probably means that the fundamental impact outside of a few sectors is probably low. there’s certainly, i think, a high degree of psychological impact on the office and―on the market and it’s one of the issues creating the decline we’ve experienced in recent days.
>> will it keep the market trading lower? will it be the focus or can we get back to things like the presidential election, earnings growth, that sort of thing?
>> i think the presidential election is also part of the reason there’s been a decline and the rally earlier in the month discounted it fact that it appeared bush was sailing to victory. that doesn’t appear to be in doubt but i think that was priced into the market so the outcome of the debates will probably be the next factor in that. certainly, if oil continues to be higher, that will hurt the market but i think it’s only one of the issues in front of the market and i would say the third issue, it appears right now that earnings season isn’t going that great and these 20-plus percent earning gains from previous quarters, that streak probably in jeopardy in the third quarter, causing concern with the market , as well.
>> volatility had gone way down and turned around in the middle of the month. what’s making people so nervous right now? what’s the main issue, oil?
>> i think oil is an issue. i think the weakness in the economy, despite what the fed says, it appears that the soft patch in the summer is continuing. we’ve had three monthly declines in leading indicators―durable goods was poor the other day. it just appears that what was thought to be simply a summer slowdown we would rebound from, that rebound is not happening and has people concerned.
>> we’ve had 11 quarters of rising g.d.p. 1.7 million jobs created since the first of the year, largest increase in industrial output in six or seven years and unemployment way down and people still say the economy is not good and they’re worried about it.
>> well, i don’t think people are saying that the economy of the previous nine months is poor. i think the concern is the expectation for the next nine months so what―what the bears say, anyway, is that the reason the economy was good over the last year was monetary stimulus from extremely low interest rates, that that changing on the short end, and fiscal stimulus from tax cuts has worked its way through the system now, the tax cuts being temporary in nature and the unsuccessful attempt to make them permanent and people are concerned the economy will be poor in the next six to 12 months creating a decline in the market .
>> how do you invest in this climate where uncertainty seem it is to be all?
>> i think you did hit the nail on the head when you said it’s probably not all that bad. i think people are concerned the economy will slow down. i think short term, we probably have more of a decline to go in the market in the next few days. i think we’re getting close to oversold levels on both large cap and small cap stocks. probably time for a trader, anyway, to put money to work here with―i see maybe a 1% or 2% further decline in the market and i think it will be time to buy stocks again.
>> so this is a washout, a little bit of a correction, not really a secular decline?
>> i still think we’re in a trading range and i don’t see news on the horizon that, barring the horrific terrorist event or some kind of unexpected global catastrophe, i think the market ‘s going to continue to be in this trading range and i think we’re getting to the low end of the trading range and it’s time to buy and as the market approaches the high end of the trading range, i’d be looking to sell again. i think that’s how you play the market right now.
>> thank you very much, steve masoma―massocca.the world’s biggest bank has named sallie krawcheck the highest ranking woman on wall street. we’ll look at the job swap, next.
