Good morning,
Was out since last Friday. Need to do some catchup first.
Watch adct, awre(not ancr), nxtl.
I have played rfmd several times. Last round was in before split. And took profit around 48. Am looking for an entry, maybe 40 or 42.
Like you said, they always can find ways to talk market down, with or without Fed.
NEW YORK (Reuters) - The Fed has made its move and raised interest rates, just as the
gurus thought it would.
So should investors party like it's, well, 1999, and buy more stocks between now and the
end of the year?
On Tuesday, the Federal Reserve's policy-makers, the Federal Open Market Committee,
raised two short-term interest rates by a quarter percentage point each. They even said the bias is neutral -- with no urge to
hike or cut rates soon.
On Wednesday, the Dow Jones industrial average set a new record close of 11,326.04. Since the year began, the Dow is up
21 percent, the Nasdaq has risen 26 percent, and the Standard & Poor's 500-stock index is up 10 percent.
''I buy the theory the Fed is non-operative for the rest of the year,'' said Larry Wachtel, senior vice president and market
analyst for Prudential Securities Inc. ''I feel friendly toward the bull market. The Fed's outta my hair. The rates and the profits
are in my favor,'' adding he expects good third-quarter earnings.
As for where the Dow goes next, Wachtel shrugs it off.
''I'm not going to get involved in 'the Dopey Dow' -- does it go up to 12,000 or fall down to 10,000? That's an exercise in
futility. I don't care if the Dow goes down a couple hundred points or goes up a couple hundred points.''
In the opposite camp is Charles Blood, Fed watcher and director of financial markets analysis for Brown Brothers Harriman &
Co.
''My take is'' Tuesday's Fed ''move is another step toward entering a bear market in the year 2000,'' Blood said.
And how will investors know it's a bear market, instead of a correction, or 20 percent drop?
''I define a bear market as a stock market falling to an 18-month low,'' or ''well in excess of 20 percent down and lasting for
six to nine months.''
So whose arm should investors take for the dance?
Blood, despite his bear market warning, said, ''Short term, we think the stock market, and by that, we mean the S&P, still has
the capability of making a new high over the next couple of months. We're using a year-end target of 1,450, and we've
reduced that from 1,500.''
The Fed, by raising the fed funds rate to 5.25 percent from 5 percent and the discount rate to 4.75 percent from 4.5 percent,
showed it's on inflation patrol, economists said. The fed funds rate is what banks charge each other for overnight loans;
discount rate is what banks pay for a Fed loan.
With Y2K worries in the fourth quarter, the Fed won't want to rock the boat before the year ends, Wachtel reasoned.
The drop in the yield of the 30-year U.S. Treasury bond is a green light for stock investors, in Wachtel's opinion.
''When the long bond's yield was at 6.25 percent, it was dangerous,'' Wachtel said. ''That was when you had cross-over from
stocks into bonds. But now with the yield'' at 5.98 percent, that cross-over effect ''has muted.'' The long bond's yield fell as
low as 5.85 percent on Wednesday, the day after the Fed's rate hike.
The long bond's yield crept back up late Friday as its price fell more than a point, in tandem with the Dow's slide of more than
100 points -- after Federal Reserve Chairman Alan Greenspan's remarks in Jackson Hole, Wyo., that central bankers must
consider the prices of stocks when setting monetary policy. The Dow ended down 108.28 points Friday at 11,090.17.
Where Wachtel sees stock-friendly signs, Blood smells danger.
''We have become increasingly worried'' about the stock market's technical and financial background, Blood said. ''On the
financial side, we see rising long-term interest rates'' since last October, ''rising short-term interest rates'' over the last couple of
months, ''and now this has been confirmed by the first discount-rate increase from the Fed.'' More worrisome, ''we've seen a
peak in liquidity'' in stocks and bonds, he said.
''Last year,'' Blood said, ''the Fed was easing, money supply was growing rapidly and economic activity, as measured in
dollars, was moderate. Now we've seen a complete flip of that. Oil's up, so inflation is rising. Economic activity, as measured in
dollars, has picked up, money supply growth has slowed, and now the Fed is tightening.''
Technical indicators spell caution, Blood said, noting peaks in advance/declines, new high/lows and trading volumes.
For now, Wachtel said he's ''buying selected stocks ... drugs have been oversold. I like fallen angels ... Coke (NYSE:KO -
news), Kodak (NYSE:EK - news) & AT&T (NYSE:T - news) .... He also likes semiconductors, computers ''and Internets,''
but ''they can't be garbage-dot-com. So I'm buying AOL (NYSE:AOL - news), Excite(at)Home (Nasdaq:ATHM - news),
CMGI (Nasdaq:CMGI - news)."
But if Blood is right and the bear is sharpening his claws, what should investors do now to protect themselves?
''We're starting to tell people they should plan for a bear market,'' Blood said. ''You should own a much more conservative
type of stocks and have more cash reserves.''
Think ''utilities, oil, depressed consumer stocks,'' he said. ''These are all hiding places.''
For the week, the Dow Jones industrial average was down 10.44 points at 11,090.17. The Standard & Poor's 500 index
gained 11.66 points at 1,348.27 and the Nasdaq composite index was up 110.57 points at 2,758.90.
Iris |
