Consensus sees down. Everybody is usually not right.
From NY Times:
September 26, 1999
Wall St Wonders How Long Bear Will Last
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REUTERS INDEX | INTERNATIONAL | BUSINESS | TECHNOLOGY
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Filed at 12:58 a.m. EDT
By Reuters
NEW YORK (Reuters) - One month and 1,000 points into correction territory for the Dow Jones industrial average, Wall Street's pulse-takers see few signs that the bull's return to raging status is imminent.
Instead, a growing number expect this particular downturn, unlike its predecessors over the last five years, could have legs unlike anything the market has seen since the year-long grind of 1994.
In that year, the Dow managed a mere 80 points of positive movement to close the year at 3,834, a bit over 2 percent of returns.
By a variety of measures -- the Dow's inability to build meaningfully on its highs set back in May when it first crossed 11,000, or the fact that more stocks have been falling than rising for nearly 18 months, for example -- the grind is already well under way.
''From the market's point of view, you've had flashing yellow lights for a long time,'' said Dick Stein, vice president and chief technical analyst at Boca Raton-based Noble International Investments.
''What this market needs is a major correction, both to wipe out some of the unreasonable expectations and to let earnings catch up to prices,'' Stein said. ''I think that could be something that takes nine to 15 months.''
Stein is far from alone in his cautious outlook. A recent poll of top Wall Street strategists by Reuters, conducted before the Dow's pair of 200-point declines this week, showed little if any near-term optimism on Wall Street.
Most said the simple fact that interest rates are rising, rather than steadily declining as they have in recent years, capped any potential market gains for this year. On average, the analysts saw the Dow ending at about 10,700 by year's end, well shy of its high of 11,326.04 on Aug. 25.
By the end of 2000, the forecast is somewhat more bullish, with a Dow target of 12,000. Still, that only represents 700 points of opportunity over the highs and, in many cases, it included expectations the market's next turn would be for the worse.
At a time when the market had not yet broken down below its summer-long trading range, Richard Cripps, chief market strategist at Legg Mason Wood Walker in Baltimore, forecast the market had ''a good chance of a 10 percent or so correction'' over the near term.
By Thursday's close, with the Dow at 10,318.59, the market was already more than 9 percent of the way there.
If a protracted decline does lie ahead, trading volumes would almost certainly follow suit, hitting the brokerages that have ridden a profit boom on the back of the market's gains and massive volume, which translates into rich commission income.
It is no surprise to some analysts, therefore, that shares of banks, brokers and other financial services companies have been dealt a severe drubbing over the last couple of months.
According to the thinking of many on Wall Street, optimism about the overall market cannot be trusted until investors buy up brokerage stocks, sporting prices that in some cases are below 10 times earnings.
''The performance of the financial sector is no small matter,'' said Stephen Shobin, technical analyst at Lehman Brothers. ''While the blue-chip averages can have brief bursts of glory, the overall market tends to do best when financials act well.''
Sentiment measures bear out the argument that investors are getting the message that the extraordinary gains of recent years may be just that -- a thing of the past.
In the latest weekly survey by the American Association of Individual Investors, only 36 percent of respondents described their outlook as bullish -- a drop from 44 percent just since the beginning of September.
Over the same period, those calling themselves bearish have climbed to 28 percent from 18 percent.
While negative sentiment can, over the short term, indicate the market is due for a bounce, trying to pick the bottom by using sentiment is a dangerous approach unless the underlying longer-term outlook is clearly bullish, analysts said.
That may no longer be the case.
Shobin's advice if a bounce does materialize?
''Sell rallies.''
For the week, the Dow Jones industrial average fell 524 points. The Nasdaq composite index, heavy with technology stocks, lost 129 points.
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