I believe they picked April of 98 to start the study was not to assure results but because that was the last that the broad market moved together. April was when the IT companies and many of the smaller software makers got hit, then each month after that another sector slid until finally the whole market dropped in July. The rebound in October proved to be false for many sectors and only the chosen few continued to climb up until this spring's slide and even they became fewer and fewer as the rally grew tired.
As for earnings growth this year, I haven't seen much growth in earnings over the last 2 years. Last year as you pointed out was bad for many companies and this year's gains looks great copmpared to last year but wasn't much over the year before. Averaged 2 year growth has been minimal and many of the techs are seeing their boom time right now as everyone buys new stuff just in case Y2K is real. Basically the Air Force is like a big business. We have been screaming for new computers to replace our 486s for years and it always fell on deaf ears. This quarter, we finally got new 400 pentiums for the entire office and for most of the squadrons at almost every base I know of. Now you want to bet on how many machines they will buy over the next 5 years? Zilch, nada, nothing. Enjoy the earnings spike this year because IMO this is the end of the technology buying frenzy once Y2K passes. Until a new program comes out that requires a lot more power, we can do everything we need to do with MSFT NT, a pentium machine and 128 RAM. There might be some carry over by some private sector types like the ones I know that won't buy a new machine until Y2K is over but they are the minority and they are the ones that haven't bought one at all yet. These are also the types that bargain hunt and will only buy low end machines that are on sale when sales plummet next year. No ASPs for the makers.
As for your thingking we could go flat, I have thought that for some time but that was before foreign markets started recovering so quickly. The outflows from the US into their markets will probably nix that idea now. It takes a lot of liquidity injection just to stay flat at these levels and with fund inflows slowing or reversing and now foreign money running away, we have introduced a leak in the balloon and the Fed isn't in the mood right now to liquor us up anymore and plug the leak. This reduction in liquidity is the prime factor in why the rally has been narrow IMO. J6P want's gains in his fund or he will pull his money exasperating the situation so the funds sell stock to buy index propping stock so J6P sees gains being made. However, it has to stop some time or else those 65 stocks will soon be trading at PE ratios of 5000. Either liquidity has to return or else they finally give up and let it drop. M2 Money supply has been reversed and is being reduced now, the bond repurchases are surprisingly small despite the fall in the market last week where as in the past they would open the flood gates to ease the drop. I believe we spit in the eye of the Fed one too many times and he is about to send us to our room with no supper.
I may be all wet and the Fed may repo 15 billion in bonds this weekend for a Monday rally but I think they are sitting back and watching right now to see if we can just ease back on our own. The problem is when a few start drinking heavily and realize they are alone, everyone may decide to leave the party all at once. I don't want to be the one standing in the corner with the lamp shade on my head wondering where everyone went. Also if they do try to party like 1999, daddy AG may come home early and call the cops ending the party quickly and harshly.
EDIT for those that think the bear if it is a bear should be ending because it has been the average time. Bears are measured in indexes not what we are talking about. Officially the bear has not started yet and may not for some time. However for the reasons I posted earlier, I now expect it sooner than the 3 year window I originally gave it max. I now believe summer 2000 at the latest probably this year.
Good Luck,
Lee |
