Investors Should Take Heart From S&P 500 -Reuters 2-12-00
go2net.com
Investors Should Take Heart From S&P 500
By Jan Paschal Feb 12 8:28am ET
NEW YORK (Reuters) - Wall Street can throw out the worry beads that it has had around its neck since January's big market chill. All that investors need to do is look at how the Standard & Poor's 500 index behaved in the final quarter of 1999 to get a whiff of where stocks will go this year, one expert says.
The outlook is for an up market. The reason: In last year's fourth quarter, the S&P 500 index rose 14.5 percent from the third quarter.
That performance points to more gains in the first quarter of this year and for all of 2000, according to Arnold Kaufman, vice president and editor of The Outlook, a weekly investors' newsletter published by Standard & Poor's Corp.
``We have a forecast of 1,600 at year end for the S&P 500,' said Kaufman, who joined S&P ``as a boy' 40 years ago.
Based on a current S&P of about 1,387, that could mean a 15 percent gain for the index this year.
Flash back now to the fourth quarter of 1935, when the S&P 500 index rose 15.9 percent -- and that was in the middle of the Depression.
Since 1935, there have been eight fourth quarters in which the S&P 500 gained more than 10 percent, and all were followed by ``further advances in the next year's first quarter,' Kaufman wrote in the latest issue of The Outlook.
He made that prediction before the bitter end of January, of course, when the Dow Jones industrial average fell 4.87 percent from its record finish on Dec. 31, and the Nasdaq composite index slipped 3.16 percent from its year-end high. The S&P 500 finished January down 5.1 percent from its record close at the end of 1999.
``I think the January decline for the S&P 500, for all the indexes, was disappointing,' Kaufman said. ``We were hoping to see a stronger January because January sometimes sets the tone for the whole year.' He was referring to the so-called 'January effect,' which usually brings strength to stocks due to an influx of cash that investors put to work from year-end tax selling or bonuses.
``But that weakness in January did not break the momentum,' Kaufman noted. ``Certainly, Nasdaq has been strong recently, and so we think by the end of the first quarter, there will be gains' in all three major stock indexes.
``There is strong underlying demand still evident,' he said in an interview. ``When we get dips in the market, they don't last very long.'
January's market drop, of course, was due to high anxiety over rising interest rates. On Feb. 2, the Federal Reserve did what many thought it would -- raised rates by a quarter-percentage point -- and the market rallied in relief. A portfolio wrecker, it wasn't.
``We expect two more Fed rate increases -- the next one in March and then again in May -- each a quarter percentage point. That should be it.'
If Kaufman is right, the Fed will stop in May with six rate hikes in a row.
``I think (corporate) earnings will be very good for the first quarter,' Kaufman said, because the economy is ``so powerful.'
The S&P 500's five biggest names are: Microsoft Corp. (MSFT.O), the software giant that also is a Dow component and the most heavily weighted stock in the Nasdaq composite; General Electric Co. (GE.N); Cisco Systems Inc. (CSCO.O), the world's largest maker of the equipment that drives the Internet; Wal-Mart Stores Inc. (WMT.N), the huge discount store chain, and Exxon Mobil Corp. (XOM.N), the oil giant.
For 2000, Kaufman said ``it seems to be a good bet that the Nasdaq will outperform the Dow and the S&P (500). It looks as though technology is where the action will remain.'
Yale Hirsch, Wall Street historian and editor of The Stock Trader's Almanac, said he thinks the Dow, Nasdaq and S&P 500 will gain enough in February to undo January's damage.
The reason? First, there's ``the upside momentum,' Hirsch said. ``In the past five years, $12 trillion has come into the market. That's a lot of money.'
Second, ``I don't think (Federal Reserve Chairman) Alan Greenspan is inclined to break the economy. The (economic) numbers are still pretty good. They're not showing signs of great inflation of any kind.
``My original forecast was for the stock market to top out in April, at about 12,000 or 12,500 for the Dow,' Hirsch said. 'I still think that's possible.'
Timothy Woolston, vice president and portfolio manager at Boston Advisors Inc., said, ``My best take is that the small-cap and mid-cap growth stocks will maintain their leadership. But their overall advance, if they're in the S&P 500, will not offset the decline in the large-growth stocks.'
Since it's an election year, ``that could make the Fed a little more market-friendly than it has been in the past 12 months,' Woolston said.
Sounding a note of caution, A. Marshall Acuff Jr., chief U.S. equity research strategist at Salomon Smith Barney, said, 'Generally stock markets don't go up very much when we're in a period of Fed tightening. That doesn't mean we're in a bear market. It's just more challenging to make money.'
On Friday, the Dow Jones industrial average (.DJI) fell 218.42 points, or 2.05 percent, to end at 10,425.21, on concerns about an economic slowdown. For the week, the Dow fell 538.59 points, or 4.9 percent. Friday's slide put the Dow in correction territory, down 11.07 percent from its Jan. 14 high of 11,722.98. Wall Street analysts define a correction as a decline of 10 percent or more.
The Nasdaq composite index (.IXIC) slid 90.18 points, or 2.01 percent, to close Friday at 4,395.45. For the week, though, the Nasdaq was up 151.31 points, or 3.6 percent. The S&P 500 index (.SPX) dropped 29.71 points, or 2.10 percent, to 1,387.12. For the week, the S&P 500 was down 37.25 points, or 2.6 percent. |
