FaceTime July 23, 2009, 12:18AM EST

How Real Is the Market Rally? Two Views

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Cohen of Goldman Sachs

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So it sounds as though you think the market will be higher by yearend than where we are now.

ABBY JOSEPH COHEN

We think the market should be viewed as a series of trading ranges [a trading range is the spread between high and low prices over a period of time]. Forget the U, forget the V; it looks like a staircase. We've had a very significant upward step from March. And we think that the next step will also be upward. There are two very important things here. Number one, we think the recession will be ending. We think GDP will be positive in the second half of the year. The other thing that will look better will be corporate profits. Keep in mind that we're getting to some extremely easy comparisons. The third quarter of 2008 was not good, and the fourth quarter of 2008 was dreadful. So those comparisons are going to look great. Also a bit of an optical illusion is that some of the companies in big trouble that were in the S&P index a year ago, may no longer be there. But the third thing that is more important, and we're spending more time looking at, is that we do see profit margins picking up.

What are you looking at right now as far as specific opportunities in stocks?

ROBERT ZAGUNIS

We have Cognizant Technology (CTSH). We own Microsoft (MSFT), a fairly large position. We own Oracle (ORCL). Adobe Systems (ADBE), ADP (ADP), and Paychex (PAYX). One theme for us is efficiency—businesses looking to outsource functions that someone else can do a lot better than they can internally. I mentioned health care. We feel there is a great opportunity there. We own Stryker (SYK), Medtronic (MDT), and Johnson & Johnson (JNJ). Interestingly, we used to be in pure pharma, but have sold Merck (MRK) and Pfizer (PFE).