John J. Edwards III Chats on AOL, Dec. 6

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John J. Edwards III chatted on AOL MarketTalk Monday, Dec. 6. AOL's MarketTalk is hosted by Sage Online (Keyword: PF Live). As with all chats, this transcript is unedited.

Comment:

Live from New York, N.Y., 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:

Hi. Great to be here!

Question:

Why is the performance between the Nasdaq Composite and the Standard & Poor's 500 equity index diverging of late?

Jedwards:

What we're seeing is a twist on the classic Wall Street factors of greed and fear -- investors fear not listening to their greed. Their greed tells them to chase the hottest area of the market, and that's big-cap technology right now.

Jedwards:

The S&P has a lot of those companies, but the Nasdaq is heavily loaded with those and the more speculative tech plays that are also attracting a lot of capital.

Question:

Do you expect the rate of the 30-year bellwether U.S. Treasury bond to remain below the 6.50% yield?

Jedwards:

Yes, I think the bond market is pretty confident there won't be another rate hike before February, and possibly not until March. That should keep the long yield under the 6.40% yield we saw some weeks ago.

Question:

Do you anticipate a "Santa Claus" rally at year's end?

Jedwards:

Look around -- seems like Santa's getting a head start. I think we're seeing a rally in anticipation of the Santa Claus rally, which in turn was going to be a rally in anticipation of the post-Y2K relief rally.

Jedwards:

Given that the market is so eagerly rallying ahead of schedule, so to speak, we might see an intervening pullback that makes the year-end move look like a separate Santa Claus rally. But it's all of a piece, really. We're seeing one massive year-end rally.

Question:

Will technology and Internet stocks continue to lead the market higher next year despite the occasional pullback?

Jedwards:

It seems likely that technology will remain a focus, but I expect we'll see further consolidation and shakeout in the Internet arena. 2000 will be a crucial year as companies that have gotten a fairly free ride in terms of profitability (or showing a clear path to profitability) start having to put up or shut up. That said, I think the tech area overall remains vital and a big growth driver.

Question:

With nominal GDP growth slipping by 0.1% in the second quarter (Q2), does Japan's market still look attractive long term?

Jedwards:

Yes. I think this surprising GDP figure, while not exactly an anomaly, is mainly a reminder that Japan's recovery is ongoing and not necessarily completely smooth. I believe the growth trend remains in place. It's also important to note that the GDP survey in Japan has a pretty small and easily skewed sample.

Question:

Does daytrading add liquidity to the market?

Jedwards:

It does, although it's important to note that daytrading, defined as individuals actively trading in and out of positions intraday and holding none of them overnight, is still a small part of the overall market. Active trading, whether daytrading or not, provides liquidity but also heightens volatility, as we've seen in recent years.

Question:

What is your opinion of the employment report that came out this past Friday?

Jedwards:

It showed what I've been maintaining for some time, which is that the even though the job market remains drum-tight, we're not seeing signs of serious inflation. I think the Fed has done a good job of calibrating the money supply and credit, and I think U.S. industry has done a great job of boosting productivity.

Comment:

Thank you for joining us today, John!

Jedwards:

Thanks for having me. Great chatting with you, and I'll see you at TheStreet.com!