Lincoln Ellis on Nightly Business Report After Thursday’s Massive 500 pt DOW Drop
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TOM HUDSON: We`ve got full market coverage for you this evening, including analysis from Kathleen Gaffney, she manages a $20 billion bond fund, and a look at the wreckage in stocks with equity strategist Lincoln Ellis in Chicago.
And, Lincoln, let`s begin with you. Any trigger for the sell-off that you saw today in the stock market?
LINCOLN ELLIS, CHIEF INVESTMENT OFFICER, STRATEGIC FINANCIAL GROUP: Well, I think Paul`s comments over at Morningstar (NASDAQ: MORN) are right. Really, the cumulative effect of a number of things, really weak consumption numbers early in the week, followed by very lackluster labor numbers this morning, and, of course, that`s all with the backdrop of a very volatile and dangerous European equity market where they don`t seem to be able to come up with some policy responses to sort of stem the bleeding over there. So it`s very much the aggregative effect weighing on the stock market today.
HUDSON: You lived through the dot-com bubble, you lived through most recently the “Flash Crash.” Describe today, was this an orderly sell-off, or did you sense more of a throw-in-the-towel kind of day?
ELLIS: No, it was very much orderly. And it was actually reflected both in stocks and bonds, the orderliness of both the buying and the selling. The breadth and volume, as you point out at the top of the show, absolutely massive, almost three times the average volume for 2011, which leads us to believe that, you know, we didn`t see a lot of volume on the way up, but people who have been in were definitely exiting. And we think they were exiting ahead of tomorrow`s unemployment number.
HUDSON: So with that in mind, with the uncertainty still there, concern has changed from the debt ceiling issue over the last couple of weeks back to the U.S. economy and really the global economy. How should long-term stock investors view a day like today?
ELLIS: Well, today is the — today would absolutely create opportunities to be invested but to be invested very selectively. We`re telling our clients to be very defensive, very much following into the staples, utilities, and industrial names, places that have yields attached to them, that will provide some comfort in environments like this.
HUDSON: So what would be a throw-in-the-towel kind of indication for you? Is that possibly a number we get tomorrow on the jobs figures?
ELLIS: We actually think that you get a little bit of an upside surprise thanks to some seasonal adjustments tomorrow that could cause, you know, we`re in a very technically oversold moment, a bit of a rally, and that would allow us to lighten up on some of our more discretionary names, allowing us to build up some more cash positions because we do see probably a test of the 1,180 or the 1,150 level.
HUDSON: OK. So you`re looking for still even a little bit of selling after today.
ELLIS: Yes.
HUDSON: So what about areas to avoid completely that you wouldn`t touch with anybody`s money?
ELLIS: Yes, well, consumer discretionary, absolutely. We are very much staying away from the peripheral European names. If we like one equity market out there at the moment, it is probably Japan, getting battered, probably, tonight.
And we are really looking for them to have a pretty robust second half of the year on the back side of building post-Fukushima.
HUDSON: Great. Lincoln, we appreciate the insights tonight on the equity market. Our thanks to you this evening.
ELLIS: You bet.
HUDSON: In Chicago, at the CME Group (NASDAQ: CME), it is Lincoln Ellis. He is with the Strategic Financial Group.
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