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Bulls & Bears
This past week’s Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Pat Dorsey, Morningstar.com director of stock research; Scott Bleier, HybridInvestors.com president; Charles Payne, Wall Street Strategies CEO, and Bob Froehlich, DWS Scudder chairman of investor strategy.
The Dow closed on Friday at 11,577.74, just 145 points away from its all-time high. A rally at the end of the week took the blue chips within striking distance of its record. Will it break through next week?
Gary B: We most certainly will break through the all-time high. We’ve made it through earnings season without any big blips. Plus, we’ve got a lot of the major economic reports behind us. The Federal Reserve will be quiet for a few days and the greed factor is what will drive people on Monday. Many will see what happened on Friday, and if they do not already invest in the market, they will want to be invested. So, more money will keep piling in. The market will be soaring next week.
Bob: The Federal Reserve is what will stop the Dow from breaking through next week. If we’re focusing on next week, the market is not going to have a lot of money pouring in the day before the Fed meets. The reality is the Fed is going to raise rates, and when that happens the Dow won’t be soaring. The largest part of the market is driven by the financial services industry. It’s the largest part of the S&P 500. That component is so clearly tied to what the Fed is going to do. I do think we will break the all-time high later this year, just not now.
Charles: The bull market is going to turn next week. Everyone knows about the Fed meeting, which is why the market was up Friday and why it will be up Monday. I agree with Gary B. that a lot of people who aren’t invested in the market will decide that they want to be in it. There are a lot of fundamentals to this. I don’t believe Gary B. believes in this rally from the fundamental aspect. We’re really rockin’ and rollin’ because of these fundamentals.
Pat: A lot of the Dow stocks are quality blue chips and that is the asset class that has the most value right now. Stocks like JP Morgan (JPM), Johnson & Johnson (JNJ), Microsoft (MSFT), and Citigroup (C) are all very cheap, relative to earnings power. If you told me to buy an index right now, I would certainly go with the Dow.
Scott: We will hit the high next week. Whatever the Fed does, the market will spike afterwards and test the high. We might break through the all-time high, but we won’t stay through. Now is the time when the laggards are leading and you have to be cautious. I’m going to be the lone dissenter, because I think now is the time to begin to sell stocks. Three years ago when things were terrible, you had to buy stocks. Now things look great, you’ve got to sell them.
Tobin: We do have the issue of oil prices. If there were a pullback in oil prices, we would shoot up to 12,000. We could get a pullback, but that won’t mean oil prices will stop heading up. They will eventually hit $80/barrel. The key thing is that old tech is new tech. If you look at what we have underinvested in for 25-30 years, it’s been infrastructure and what makes our country work. The Dow is the best place position of any index right now.
Many companies had to close their doors because of the May 1 illegal immigrant walkout. Are the best stocks to buy the ones that don’t hire illegals and were able to conduct business as usual?
Gary B: I love FedEx (FDX). The stock has been in a beautiful uptrend since last September and it just started a new leg up. It’s been so solid. It could hit $150 by the end of the year. (FedEx closed on Friday at $119.31.)
Charles: I agree and also love this stock. My clients have been in it for a long time. UPS (UPS) is less undervalued, but this is a play on the global economy.
Bob: This is a great all-American play, but now there’s a high cost of energy, which will start eating into it. I do own it, but I think it’s in for a correction.
Charles: My pick is Bear Stearns (BSC). We’re talking Wall Street, which is all-American in itself. The stock pulled back recently, but it is a juggernaut. I think it will continue to grow. (Bear Stearns closed on Friday at $142.20.)
Bob: Bear Stearns doesn’t have a lot of international presence, but it has some development starting to brew with China. Plus, it has 80 consecutive years of making money. I do own Bear Stearns.
Gary B: The chart shows no sign of problems…yet. It has also been in a beautiful uptrend since late last year. As Wall Street goes up, so will Bear Stearns. However, get out of it if it closes below its trend line, around $140.