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Markets Will 'Double This Decline' Into Year-End

Friday, 21 May 2010 | 12:01 PM ET

Stocks erased early losses on Friday, defying market expectations for another big selloff, but struggled to hold gains. What should investors expect from the markets going forward? Paul Schatz, president at Heritage Capital, and Dirk Van Dijk, director of research at Zacks Investment Research, discussed their opposing views.

Bull/Bear: S&P
The S&P sitting in correction territory, with Dirk van Dijk, Zacks Investment Research and Paul Schatz, Heritage Capital.

“The decline we're seeing will wrap up in the next 1 to 4 days,” Schatz told CNBC.

“We rally into summer—but double this decline for what we see into the rest of the year.”

Schatz said the markets are in deflationary times and warned investors that there are several catalysts that “spell long-term term problems.”

“Tax rates are going up next year,” he said. “The Fed has just finished buying MBS* in March and is already talking about selling it—so all this free, easy cheap money is coming to an end.”
*(Mortgage-Backed Securities)

Counterpoint: Stocks Will Rise

In the meantime, Van Dijk said although the market could see another 4 to 5 percent drop, earnings and interest rates are ultimately going to drive stocks higher.

“In 2009, the S&P earned $58 a share; this year, it’s going to earn $80 a share; and next year, $95 a share according to consensus,” he noted.

“Not only that, we’re coming off a 45 percent earnings growth in the first quarter.”

Scorecard — What They Said Last Time:

  • Schatz's Previous Appearance on CNBC (May 18, 2010)
  • Van Dijk's Previous Appearance on CNBC (Jan. 15, 2010)

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Read These Opposing Views:

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CNBC Data Pages:

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CNBC Slideshows:

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Friday's Top Dow Gainers (As of Mid-Morning):

JPMorgan

Bank of America

Walt Disney

Boeing

Caterpillar

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Disclosures:

No immediate information was available for Schatz or van Dijk.

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Disclaimer

  Price   Change %Change
BAC
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CAT
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DIS
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JPM MLP ETN
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BA
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