John J. Edwards III chatted on AOL MarketTalk on Monday, Feb. 7. AOL's MarketTalk is hosted by Sage Online (Keyword: PF Live). As with all chats, this transcript is unedited.

OnlineHost:

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

SageMoola:

Good afternoon and welcome to MarketTalk, Mr. Edwards!

Jedwards:

Thanks very much. Great to be here!

Question:

Do you see a major market correction on the horizon in light of the recent inflationary economic reports?

Jedwards:

There's a great push and pull in the market, certainly. I think the Fed is bound and determined to see some slowing take hold in the economy before we start to see real signs of inflation, and that kind of tightening environment can't be good for stocks.

Jedwards:

However, the Nasdaq is holding up better than I would have expected. There's starting to be a perception that growth stocks, typified by techs, aren't as rate-sensitive as they used to be. So we could see a continuing divergence, with techs holding up while other sectors retreat. I expect either that or an overall pullback of some modest duration.

Question:

Do you think the end of the lockup periods in hot IPOs will lead to an oversupply in the market?

Jedwards:

It'll definitely lead to an oversupply in some of these stocks, if not for the market overall. A lot of the hottest IPOs have been so hot because their floats are so small. With no significant earnings -- and often significant losses -- the supply/demand imbalance has been a major support for these stocks.

Jedwards:

Many will do quite poorly as their lockups end. TheStreet.com's Ben Holmes writes every week about upcoming lockup expirations, as well as all other aspects of IPOs. Check him out.

Question:

How do you see the retail apparel sector?

Jedwards:

Given that the economy continues to look hot and shows few signs of slowing, I have to think retail looks good. However, if the Fed gets serious about slowing the economy down, retailers will feel it keenly. Again, TheStreet.com has a great reporter, Katherine Hobson, covering the ins and outs of the retail sector. She's well worth reading.

Question:

Do you think we will see continued consolidation in the drug sector?

Jedwards:

Yes, I do. I certainly think American Home Products will keep searching for a partner, now that it's a three-time loser. And I think other drug companies will seek to build themselves into giants to improve their drug pipelines and insulate themselves from various pressures (increased regulation, patent expirations, etc.).

Question:

Is it a bad time to buy stock, or is it better to invest in mutual funds at this time?

Jedwards:

This may sound like a copout, but it's really hard to make blanket recommendations like that without knowing your individual investment needs. If you're a young person with a decent amount of risk capital, it makes perfect sense to do research on more speculative issues and sectors and take a flyer on something with great growth potential. If your needs are more conservative, it may be best to seek the relative safety of mutual funds.

Jedwards:

Either way, doing your own independent research is crucial. You can get ideas at TheStreet.com and elsewhere, but they're starting points, not things to make you jump unthinkingly.

Question:

What do think of the financial sector for the next few months?

Jedwards:

I think the financial sector is a tough one to play here, with the Fed on a hiking spree. Like tech stocks, banks and other financial institutions are more insulated from rate hikes than they once were, but I think a slowing environment can't be good for them.

SageMoola:

Thank you very much for joining us today, Mr. Edwards!

Jedwards:

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