Stock Smarts: Hurts so Good
The economy's growing, so how come stocks are shrinking? Last week all the major indices fell: The Dow down 1.3%, the Nasdaq, down 4.1% and the S&P 500, down 2.1%. We asked the Cashin' In crew.
Charles Payne, CEO of Wall Street Strategies says the economy is growing but not across the board. We are coming out of a recession and inventories are building up again helping to push that GDP number up but we are still waiting to see if demand will return. That's the economic issue. Then of course there are some non-economic issues like the trouble in the Middle East.
Hilary Kramer, investment strategist at Montgomery Asset Management agrees trouble in the Middle East has shaken investors' confidence. She points out that the Middle East, especially Israel was bringing in a lot of money and a lot of consumer demand. There was a Silicon Valley there and all that has been shaken up by terrorism and that contagion has spread to the United States.
Dagen McDowell, Fox Business News Contributor says people are watching corporate earnings because a lot of stocks have run up a lot lately. For example, many of the industrial materials stocks that have held steady throughout the turbulence in the market. And people are waiting to see if the earnings these companies report for the first quarter justify their prices. The waiting game is a drag on the market.
Jonathan Hoenig, portfolio manager at Capitalistpig Asset Management says: "We too often forget that the economy and the stock market are two different things. We could very easily get a recovery in the economy but not a recovery in stocks, and especially not in a lot of the stocks that people bought in the last bull market in the 1990's." He says the market recovery will not necessarily show up in the popular stocks that a lot of people already own and that we are watching when we watch the big indices like the Dow and the S&P 500. He says the recovery will continue to show up in smaller stocks, overseas stocks and gold and REITs.
Jonas Max Ferris founder of MAXfunds.com says a strong economy is not enough to make the market go up, it takes strong earnings which we have not yet seen.
Then Hilary, Jonathan and Charles named their favorite bets right now:
Hilary: Valero Energy (VLO) Charles and Jonathan both like this stock as well. Hilary owns some VLO.
Jonathan: Asia Pacific Fund (APB) Hilary likes this pick. Charles says there are better plays for this kind of international exposure. Jonathan owns shares in APB.
Charles: Cumulus Media (CMLS) Hilary likes it. Jonathan says, "It's not a bad stock."
Mutual Fund Face-Off
Champs & Chumps! We did a Fund Face-Off report card on Dagen & Jonas. At the end of 2001, Dagen and Jonas made some New Year's resolutions, including mutual fund picks that were their best bets for 2002. We took a look at their performances over the first three months of the year.
Dagen: PIMCO RCM Global Technology Fund (DGTNX)
Minimum Investment: $5,000
Expenses: $17.50 for every $1,000 invested
Year-To-Date (through 4-5-02): DOWN 14.9%
Jonas: FMI Stock Fund (FMIMX)
Minimum Investment: $1,000
Expenses: $12.30 for every $1,000 invested
Year-To-Date (through 4-5-02): UP 5.4%
Dagen and Jonathan wrapped up the show by answering some email questions from viewers:
Question: "I want a diversified small cap fund. Should I buy a fund that tracks the Russell 2000 or is the S&P 600 a more 'pure' small cap index?"
Jonathan: I like the S&P 600 more than the Russell 2000. And of the three "iShares" that track the S&P 600 - S&P 600 Index (IJR), S&P 600 Value Index (IJS), S&P 600 Growth Index (IJT), my favorite is IJS.
Dagen: You might want to look at a mutual fund that invests in small cap stocks. Check out Forward Hoover Small Cap Equity Fund (FFSCX).
Question: "I am hanging on to EMC (EMC). My investment is down 30%. Should I wait for a comeback in the storage sector or take my loss?"
Dagen: Don't expect it to make a comeback anytime soon. This company depends on corporate spending, and that just isn't happening right now. Maybe look at a tech fund if you want to play the sector.
Jonathan: Cut your losses. This stock is going nowhere.
Question: "Could you recommend any books for individual investors who want to learn about technical analysis?"
Jonathan: Read Technical Analysis of Stock Trends, edited by Robert D. Edwards. I have a copy on my desk.
Dagen: For a more fundamental approach to investing, read One Up on Wall Street by Peter Lynch.
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