Tom Galvin Wears 'King' of the Street Crown (For Now)
By Aaron L. Task
Senior Writer
5/3/00 8:55 PM ET
SAN FRANCISCO -- If the head that wears a crown truly lies uneasy, to paraphrase Shakespeare, Tom Galvin, chief investment officer at Donaldson Lufkin & Jenrette, has some restless nights ahead of him.
In case you missed it, Galvin was all but coronated the new "king" of Wall Street by CNBC Wednesday. His bullish comments -- on the market in general and technology in specific -- made to DLJ's sales force, and repeated in a subsequent appearance on the network, were cited as the impetus for a late-day bounce that helped the Nasdaq Composite Index close well off its session low (around 3593), down 78.14, or 2.1%, to 3707.31.
Whether or not Galvin's comments really accounted for the Comp's spike, the fact his appearance coincided with the upturn rapidly went from coincidence to catalyst for a cadre of CNBC anchors (save Bob Pisani).
Some market players were less accepting of that scenario.
John Roque, senior analyst at Arnhold and S. Bleichroeder (and occasional contributor to this site), downplayed the so-called Galvin effect. He observed that short-sellers are "much less likely to hold positions overnight" in the current environment, because stocks can "ramp on little volume" if there's a positive news development.
That speaks to the liquidity problems Jim Cramer, among many others, has been talking about.
But maybe Galvin does deserve credit. After all, the Nasdaq bounced further than the Dow, which closed down 2.3% to 10,480.13 after trading as low as 10,400, and the strategist was most bullish on growth names.
"We continue to believe that only margins for unit growers will be able to survive in an environment of rising costs of labor, material and capital," Galvin wrote in a report issued Monday, and said as much again Wednesday. "Therefore, we are overweighted in technology, health care and communications" and underweight financials, save brokerage institutions (can't bite the hand that feeds you) and insurers.
In addition to DLJ's clout, Galvin's bullishness "in the face of tremendous uncertainty" is what the mainstream press has seized upon, said another Wall Street strategist, noting the DLJ executive was the subject of a profile by The New York Times. That followed Galvin's bold recommendation for 90% equity weighting in the wake of the Comp's mid-April swoon.
"Tom Galvin is the new star on Wall Street," the source said. "Plus, the press has already destroyed just about everyone else."
Indeed. Remember when Ralph Acampora could move markets with a mere twitch? Or -- for those who've been around the game a little longer -- Joe Granville? Or Michael Metz, etc., etc.
To his credit, Galvin eschewed the guru-king title.
"This market is way too big for any one person," he said Wednesday afternoon. "I would never want to be a daytrading strategist. I'm not there to say what will happen tomorrow. Hopefully, I can tell people where they should or should not be looking over the next three to six months."
That sounds pretty much like what a Wall Street strategist traditionally has done. The problem, it seems, is that there's such a focus on the here and now these days, that there's a ceaseless demand for instant analysis, if not a savior. Goldman Sachs' Abby Joseph Cohen has reigned so long on Wall Street because she almost never comments on short-term fluctuations.
Galvin would do well to follow her lead, or risk being sent to the media equivalent of the gallows, should he dare commit the cardinal sin of being wrong.
To err is human. To forgive, unlikely.
And Another Thing
Unfortunately, Galvin was pressed for time and I was unable to query him about the most controversial, and central, aspect of his call: that a 50-basis point rate hike by the Federal Reserve on May 16 would spark a "relief rally" on Wall Street.
The basis for that theory -- as he explained on CNBC -- is that a 50 basis-point hike would be a positive because it would signal the Fed is "vigilant and proactive" in fighting inflation. Galvin also suggested such a move would signal the central bank is close to ending its tightening cycle, noting the Fed followed several "gradual steps" with one large one during its 1994-95 tightening cycle. The stock market started rallying before the central bank's last rate hike, which occurred after the "big" one, he recalled.
With an assist from TSC's James Padihna and Justin Lahart (props to the homies), I decided to do the old double-check.
What really happened is the Fed tightened by 25 basis points each in February, March and April 1994. So far, so familiar.
Greenspan & Co. then raised rates by 50 basis points in May, but that was far from the beginning of the end. The central bank then hiked by another 50 basis points in August that year, another 75 basis points in November, followed by an additional 50 basis points of tightening in February 1995.
If that history is indeed a guide, it doesn't sound like the end is near.
"There is complacency about the Fed," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum who is bullish long-term, but not short. (There's also "ignorance" about Fed history, according to Padihna.)
"It's not the May [hike] that's disturbing," Hyman observed. "It's what comes after. Potentially, we're looking at an open-ended series of hikes."
Try as I might, I just don't see how that's "good" for stocks.
P.S.
I'm off for a few days of R&R. Back on Monday.
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