John J. Edwards III Chats on AOL, Dec. 13

<I>TSC's</I> markets editor chats about momentum trading and a possible Net stock shakeout.
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John J. Edwards III chatted on AOL MarketTalk Monday, Dec. 13. AOL's MarketTalk is hosted by Sage Online (Keyword: PF Live). As with all chats, this transcript is unedited.

Comment:

Live from New York, NY, please welcome John Edwards, markets editor at TheStreet.com. John can answer your questions about the markets and investing. John does NOT offer individual stock commentaries or recommendations.

Jedwards:

Thanks for having me. Great to be here!

Question:

Has the market overpriced some of the Wall Street tech and Net darlings?

Jedwards:

Yes, it sure has. Some of them are priced in such a way that investors are discounting patently impossible outcomes, such as a given e-tailer someday having more revenue than the entire U.S. retail market. People say they're paying for potential, and that's true in many cases, but a great many people in the market now are simply chasing momentum.

Question:

A number of people have said this market will end badly, do you think the risk is high currently?

Jedwards:

I think the risk in many areas is quite high. Much depends on your time horizon, though. I wouldn't suggest placing the bulk of your retirement money in a few Net and tech stocks, for example. But at the same time, I don't see an imminent cataclysm.

Jedwards:

There's still a lot of demand for these stocks, and the economy remains on healthy footing. Just because things are overextended doesn't mean they can't get more overextended, so we could see gains in the market overall into the early part of next year.

Question:

Today's drop in Oracle (ORCL), in your opinion is attributable to: a ) lock in on recent gains b ) lack of market confidence c ) preliminary indication they will miss whisper d) all or none of the above?

Jedwards:

I don't have any particular insights into what's going on with this stock, but you might guess there's some locking in of gains going on.

Question:

What will it take for the market to turn from growth to value stocks?

Jedwards:

It will take growth stocks not growing anymore. There's an addiction to momentum in the current marketplace, perhaps unprecedented in modern market history, and it makes it unprofitable for most major money managers to own anything that's not working right now.

Jedwards:

You'll still be able to find high-quality value stocks that will generate decent returns, but the Wall Street standard has outstripped that -- the need for jaw-dropping gains means big-cap growth will remain where it's at for the near to intermediate term.

Question:

Will the market go down in the year 2000??? Like in January??

Jedwards:

The market will go down at some point in 2000, but I expect it'll finish the year higher.

Jedwards:

It might not be another 65% year on the Nasdaq, but I think the soundness of the economy will support prices overall. There's potential for a rough January, but I think it's more likely we'll see momentum continue to rule -- the big winners of this year will keep winning and the losers will go nowhere.

Question:

When do you see the market turning to some of the value issues and cooling off on tech?

Jedwards:

I think we'll see a considerable shakeout and consolidation in the Internet business next year, and that could rattle investors enough to make them look at more traditional value plays.

Jedwards:

But I think it's more likely that rattled investors will seek to ride the winning horse until it drops, meaning they'll keep piling into the big tech leaders we know will be around for a while. And as traditional retailers and other offline companies get more comfortable with the Web, those stocks could attract some of the attention that's been lavished on Net pure-plays.

Comment:

Thank you for joining us today John!

Jedwards:

Thanks for having me.