Can energy companies keep posting huge profit growth?
McVey: Obviously, with upward earnings revisions, the energy sector, which started out 2005 with negative 4% growth expected, ended up positive 45%. When you go into ’06, energy will have the biggest deceleration of earnings growth in the S&P 500. Rate of change does matter in cyclical stocks. We have been positive on energy, but we are starting to roll back our exposure. To be a bull on the commodity part of energy, you have to have a fairly constructive view on commodity (prices). The opportunity is more the energy infrastructure, not just a commodity play. Will housing help or hurt? Will a real estate slowdown hurt the economy and market? Bernstein: Our view is that housing probably stagnates in ’06, and that could have a significant impact on consumption. The ability of homeowners to raise cash through refinancing their mortgages has had an immeasurable impact on economic growth around the world. The title of a recent Merrill report was, “As U.S. housing goes, so goes the economy.”
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