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Macke and Ritholtz Agree: Year-End Rally Likely, Facebook IPO Too Rich

Aaron Task
Editor in Chief
Daily Ticker

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It was a struggle but stocks managed to build on Monday's big gains. While down from morning highs, blue-chip averages were higher heading into the close with the Dow up 65 points.

To get a check on the market's pulse, I sat down with two of the best market mavens in the game: Barry Ritholtz, CEO of Fusion IQ, and Yahoo's own Jeff Macke.

Ritholtz believes Monday's rally was simply a reaction to the steep oversold condition that emerged after the nearly-8% selloff in the prior two weeks. In addition, sentiment had become too bearish and "the market does what it can to confound the most number of people," he says.

This snapback rally "could run another 5-6% from here without much trouble," Ritholtz says. Still, he is "a little skeptical" about calls being made by some Wall Street strategists for a year-end "melt-up" taking the S&P 500 back above 1300, any beyond. (See: S&P 500 Will Hit 1,350 by Year-End: JPM's Tom Lee)

Without putting a number on it, Macke is also inclined to think more gains are likely, especially on any signs of progress in Europe.

"Any news out of Europe can catalyze a rally," he says. "They couldn't be doing worse. They can't possibly screw it up more. If Merkel and Sarkozy are showing up for work and coming up with some sort of idea -- it's good enough. If they actually came up with something plausible...we're going higher."

No 'Friend' of Facebook

Earlier, Ritholtz and Macke tackled the fact vs. fiction in the seemingly strong Black Friday and Cyber Monday data. (See: Fact or Fiction: Is the Consumer Back?)

Here, they give their perspective on the other big news of the day on the home front: The bankruptcy filing by American Airlines and Facebook's reported plans to file an IPO that values the social networking giant at $100 billion.

Regarding the former, Macke says the only surprise is it's taken so long for American to file Chapter 11, the last major U.S. carrier to do so since the 9/11 terror attacks. "What an indictment of the American bankruptcy system - they actually announced it was a huge competitive disadvantage to not having gone bankrupt so they can stick it to their unions," he quipped.

As for the latter, both Ritholtz and Macke agree Facebook is a solid company but are wary of a $100 billion valuation. "They have a fantastic reach [and] no doubt there's a core group of people that live and die on Facebook," he says. "But the hype surrounding this and the lack of revenue or profits relative to that $100 billion market cap...at that price I'm a seller not a buyer. "

Macke agrees and says the recent swoon in shares of Groupon is "a cautionary tale to people who buy IPOs at any price."

But memories are short on Wall Street, especially when it comes to "hot" IPOs as Facebook's offering is almost guaranteed to be.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com