Thread,
Thought this article was well-written summary of the current situation. It's really a very neutral article in spite of it's title.
MikeM(From Florida)
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U.S. Stocks May Rally in Week Ahead as Investors Buy Big-Name Companies
New York, Aug. 30 (Bloomberg) -- U.S. stocks may rally in coming weeks, buoyed by a flood of cash from small investors into the big-name stocks of the Dow Jones Industrial Average. Confident on U.S. stocks amid a worldwide market slump, small investors kept buying as the Dow average shed 481 points in its worst week since the mini-crash of October 1989, money flow statistics show. ''If you look at the best indicator of the market, it's money flowing to Dow stocks, and you see money flowing in,'' said Laszlo Birinyi, head of Greenwich, Connecticut-based research firm Birinyi Associates Inc.
Birinyi's predictions have turned out to be accurate. In April 1997, when the market was in the midst of a 9.8 percent slump, he forecast three months before the fact that the DJIA average would pass 8,000. Last week, which brought the Dow's second 10 percent ''correction'' of the decade, prompted him to say that his 10,000 forecast for year-end ''is looking increasingly like a mirage.'' Yet he stayed bullish. One reason: The Dow industrials are now 9 percent below their 50-day moving average. The last 10 percent drop below the moving average took place after last October's plunge. The Dow subsequently rallied more than 2,000 points.
Yes, the news last week was discouraging to many investors, but some say the stock market is poised for a rebound this week. ''I have a good feeling about where the marketplace is, although we will see our share of volatility,'' said Steve Porpora, a specialist on the floor of the New York Stock Exchange with Gavin Benton Porpora & Co.
Benefit From Bonds
As investors sold stocks around the world, they bought U.S. government bonds. Yields on the benchmark 30-year Treasury fell to 5.28 percent on Friday, the lowest since the U.S. start regular sales of the securities 21 years ago. The low yields will be good for stocks, investors said.
Bank Slump
Banks were particularly hard-hit last week as some disclosed hundreds of millions of dollars in losses stemming from Russia's default on its debt. BankAmerica Corp., the fifth-largest U.S. bank, said it incurred $220 million of trading losses this quarter, mostly in Russia. Republic New York Corp. said it would take a $110 million charge.
While U.S. banks' exposure to Russia is relatively small, ''if this is a protracted slowdown in the emerging markets, where's their other exposure?'' said David Winton, a bank analyst at Keefe, Bruyette & Woods Inc. Even banks that don't expect to lose money in Russia were punished. Citicorp spokesman Jack Morris said Thursday the bank had no plans to announce any possible losses from its business in Russia.
Still, Citicorp stock has fallen 35 percent from its record closing high in July on concern that the bank's exposure to Russia, Asia and Latin America would drag down its earnings. Citicorp said its total Russian exposure, including loans and short term debt, was $420 million by the end of June.
Warnings Season
During the next few weeks, companies that don't expect to meet Wall Street earnings forecasts will be breaking the bad news to investors. If warnings pile up, that could temper any gains in the market. The effects of the strong dollar, which makes U.S. goods more expensive overseas, and lower demand in Asia's recession- stricken economies already showed up in first-half earnings.
The Commerce Department reported U.S. corporate after-tax profits rose 0.3 percent in the second quarter, after declining a 1.6 percent in the first quarter. That slight quarter-over- quarter gain failed to allay investors' concerns that growth is slowing. ''We were nervous about second-quarter earnings and echo that for the third quarter,'' said Franklin Morton, director of research at Ariel Capital Management Inc. ''Particularly for companies with exposure to Asia. There are also signs the U.S. economy is slowing, and we believe we will see some pre-release warnings soon.''
144 Points From Ground Zero
Last week, the Dow industrials dropped 5.7 percent. The Standard & Poor's 500 Index fell 5.0 percent. The Nasdaq Composite Index, dominated by computer-industry shares, lost 8.8 percent. The Dow average, up 18 percent for the year just six weeks ago, is now just 144 points away from losing its entire 1998 gain.
The Russell 2000 Index of small stocks entered a bear market on Wednesday, falling more than 20 percent below its April high. At the close on Friday, the loss widened to 27 percent.
Monday Drop
Even a big market drop tomorrow wouldn't faze Ricky Harrington, a technical analyst at Interstate/Johnson Lane Inc. in Charlotte, North Carolina. His evidence: the ratio of put options to calls on the Chicago Board Options Exchange, along with the volume on the New York Stock Exchange on Thursday, the second-busiest ever. To technical analysts, those are signs that investors are so pessimistic that they're hoarding cash -- which means they'll eventually buy. ''The market is oversold,'' Harrington said Friday. ''While I am looking for extreme volatility, if the market is down big today and Monday, I predict a big rally later in the week.''
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