John J. Edwards III chatted on AOL MarketTalk on Monday, May 1. 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!

Jedwards:

Thanks for having me. Great to be here!

Question:

How will shareholders fare should the Government break up

Microsoft

(MSFT) - Get Report

?

Jedwards:

I would be loath to make a precise prediction on that, as so many variables are yet to be determined and the whole process has so far still to go. But most analysts seem to be sanguine about Microsoft's prospects. One analyst said he thinks a broken up Microsoft would be worth $120 a share.

Jedwards:

And while there's no perfect analogue, the

Bell System

and the

Standard Oil

trust both generated significant gains for shareholders after their breakups.

Question:

Do you think the strong economic data we have seen will likely cause the

Fed

to raise short-term rates by 50 basis points (0.50%)?

Jedwards:

I'm leaning in that direction at this point, but we'd have to get more hints from

Alan Greenspan

and other Fed officials first. The Fed doesn't like to shock the markets, so its members tend to lay groundwork for major moves in their pre-meeting policy speeches.

Jedwards:

You should watch the officials' public statements closely for hints as to how severe they consider the nascent inflation in the economy to be.

Question:

Do you think larger initial rate increases instead of the incremental method would have "shocked" the economy into a state of slow down?

Jedwards:

It very well might have, but the effects might have been more volatile than the Fed would have liked. The Fed wants to be aggressive, but can't be cavalier; the idea is to slow the economy but absolutely not to bring it to a halt.

Jedwards:

At this point, I think there's increasing confidence that the economy can stand -- and may even need -- a 50-basis-point hike. That probably wasn't the case at the beginning of the tightening cycle.

Question:

Will this coming Friday's

employment report and nonfarm payrolls data be the most carefully scrutinized of all the economic data to come out this week?

Jedwards:

Yes, of this week's data, those will get the most scrutiny. The

ECI and

GDP reports last week gave the Fed more than enough ammunition for whatever move it wants to make, but the jobs report will likely bolster its case for tightening even more, as usual.

Question:

Your thoughts on the toy sector. Thanks!!!

Jedwards:

A tough part of retail and manufacturing, as

Mattel

(MAT) - Get Report

and

eToys

(ETYS)

have shown. I'd suggest proceeding with caution, as the toy sector can be even more volatile than adult-focused retail because of the extraordinary fickleness of children's tastes. Look for companies with a combination of sound management and market-leading products and/or market share.

Question:

The

book-to-bill ratio seems to rise month after month. Do you agree with the analysts that suggest that the semiconductor cycle has quite a bit more upside ahead?

Jedwards:

I'd like to see some more data on the trend in PC sales before really committing to that. But if you consider the total universe of chip-based products, there's definitely a lot of upside.

Jedwards:

Wireless phones and handheld computers are the hot growth areas, and they will need plenty of sophisticated chips. Overall, then, the picture is fairly bullish away from the PC sector.

SageMoola:

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

Jedwards:

Thanks for having me. Great chatting with you, as always. See you at

TheStreet.com!