John J. Edwards III chatted on AOL MarketTalk on Monday, July 31. AOL's MarketTalk is hosted by Sage Online (Keyword: PF Live).

OnlineHost:

Live from New York, N.Y., please welcome John Edwards, assistant managing editor,

TheStreet.com

. John can answer questions about the latest market-moving news.

OnlineHost:

John does NOT offer individual stock commentaries or recommendations.

SageMoola:

Good afternoon and welcome to MarketTalk, Mr. Edwards!

TSCNYJohnE:

Thanks for having me. As always, great to be here!

Question:

Where do you see the market headed in the near-term in light of Friday's stronger than expected economic data?

TSCNYJohnE:

I don't find today's Nasdaq rally terribly convincing. I think the market has some work to do on the downside from here, and I agree with strategists who say the Nasdaq will be lower in 12 months than it is now. Despite the decline from 5000, excesses remain. The broader market looks a little healthier, with valuations not quite so stretched out as in the tech sector, but I don't think we'll be looking at very many 20% annual gains for the major indices.

Question:

What's your opinion on the future of the health sector this year?

TSCNYJohnE:

I think there's too much election-year uncertainty to get involved with that sector right now. Much will depend on whether the Democrats retake Congress or the Republicans hold on.

Question:

Do you see August as up month or down?

TSCNYJohnE:

I'll say August will be a down month, because I now expect we'll see a rate hike from the Fed at the Aug. 22 meeting. The Fed is determined to see more slowing in the economy than we've seen so far, and I think investors will increasingly realize that it's harder for companies to turn in double-digit earnings growth quarter after quarter in a slowing environment.

Question:

John: Why can't the market sustain its gains?

TSCNYJohnE:

I think there's limited confidence in some of the valuations we're seeing, especially in the tech sector. "Priced for perfection" has become a cliche, but like so many cliches it has more than a germ of truth. Many stocks and sectors carry valuations that can be sustained only if each company or each sector is an absolute world-beater. That won't happen, and so it's hard for the market to sustain gains from already lofty levels.

Question:

And if the Federal Reserve raises rates, do you think it will be another .25%?

TSCNYJohnE:

Yes, that's what I expect. While the economy isn't slowing quite so fast as the Fed would like, it's clearly not as torrid as it was in months past, so a half-percentage-point hike would be excessive. But we're in no imminent danger of recession, so I think the Fed will see no harm and plenty of possible good in hiking by 25 basis points.

Question:

How do you feel about the energy sector?

TSCNYJohnE:

It's a dicey one. I don't think there's a lot of room for further oil-price gains, so oil refiners won't have that to rely on. But there are increasing operational efficiencies as the group consolidates; we're certainly seeing that with ExxonMobil, for one.

Question:

Have they ever jumped rates by .50%?

TSCNYJohnE:

Yes, they certainly have. The most recent time was this spring.

Question:

Experts say Nasdaq will correct more, but the Internets have already corrected. Do they mean CSCO, INTC, all the big caps?

TSCNYJohnE:

Well, it depends on what you mean by "corrected." TheStreet.com Internet Sector index has indeed come down to around 700 from its high around 1150, but it was wildly overvalued when it first got to 700, and things haven't changed all that much on that front. So, we could very well see further declines in some Internet stocks, and yes, we could see valuations contract among the seeming blue-chips of the tech world as well.

SageMoola:

Thank you very much for joining us today, Mr. Edwards. It's always a pleasure!

TSCNYJohnE:

Thanks for having me. As always, great chatting with you, and I'll see you at

TheStreet.com

!