They had to tell us this? We couldn't figure this one out for ourselves?
msnbc.com
LIKE RAVERS GOING BACK to their day jobs after an all-night party, investors took a sober second look at Federal Reserve Chairman Alan Greenspan's Senate testimony and concluded that perhaps their exuberant reaction was somewhat premature. After all, while Greenspan spent most of his time focusing on evidence of a welcome slowdown in economic growth, he emphatically left the door open to future rate hikes, a point stressed by the morning newspapers most widely read by Wall Street traders.
Investors also apparently remembered that slowing growth is a double-edged sword: It may reduce the chance for more unpleasant interest-rate hikes, but it also increases the chance that future quarters will show much more lackluster profits than have been seen in the first half of the year.
Another fundamental issue overhanging the market is a more uncertain psychology that has taken hold since the spring collapse in stock prices.
"This is our daily dose of manic depression," said Phil Dow, director of equity strategy for Dain Rauscher Wessels. "Since the spring, most people have had a kind of a short-term perspective: Take your profits, and run when you get them."
That's exactly what technology investors did in the week, bringing down the tech-heavy Nasdaq by 3.6 percent for its worst week since it began a rebound in late May. The broader S&P 500 was down 2 percent in the week and the Dow Jones industrial average was off 1 percent.
EARNINGS AND ECONOMY
In the week ahead, the market will continue to divide its attention between earnings and economic indicators. The closely watched employment cost index and a report on overall economic growth in the second quarter likely will provide crucial evidence for the shrinking minority who still believe the Fed might raise short-term interest rates again at its August meeting. Among major tech companies expected to report earnings in the busy week to come are Amazon.com, Priceline.com and Texas Instruments.
In addition to second thoughts about the inscrutable Mr. Greenspan, stocks were hit Friday by concerns about earnings, particularly after Agilent Technologies, a spinoff of computer giant Hewlett-Packard, said its earnings would fall well short of expectations. Agilent shares, which have traded as high as $162, fell about 34 percent to close at $48.50. America Online also fell slightly despite reporting solid earnings as some analysts grumbled about slow revenue growth.
ROUTINE VOLATILITY
All in all the picture that emerges is of a Wall Street where extreme volatility has become routine, and where bulls and bears are still engaged in a tug of war over the market's long-term direction.
"It seems like kind of a continuation of a lot of what's gone in this year, where day by day and week by week it's difficult to see any sort of a trend developing, other then a tend toward volatility and a trend toward rotation in the market," said Dave Hintz, senior research analyst at Frank Russell Co. "The easiest thing to predict in a time of volatility like this is that the volatility will continue."
The question now is whether the summer rally that seemed to be taking shape over the past six weeks will have any staying power as traders begin to flee the New York heat for cooler climes, leaving trading thin, and yes, more volatile.
"There's going to be a holding period here," said Jim Volk, co-director of trading at D.A. Davidson & Co. "This is a wait-and-see market. I do think the market is locked into a trading range and is going to stay there. I don't think (stocks) are going to break out to new highs."
He said investors are expressing justified concern that earnings going forward likely will show slower growth as the economy ratchets downward.
"Do we start a bear market on this? Probably not. But do we get a pretty good adjustment of prices, as Greenspan would call it? Yes, we do."
SLOWDOWN ONLY TEMPORARY?
Sung Won Sohn, chief economist for Wells Fargo & Co., said he thinks the greater danger lies in the opposite direction: that the current economic slowdown may be only temporary. Sohn believes there is a 30-percent chance growth could surge again in the second half of the year, forcing the Fed to resume the cycle of credit tightening it began in June 1999.
"I don't think the overall market is out of the woods yet," he said. Climbing stock prices, which increase consumer confidence and the "wealth effect" on spending, increase the odds of a spike in growth, he said.
Dow, of Dain Rauscher, does not buy that scenario. He believes the Greenspan-led Fed is doing exactly the right thing by managing the economy toward slower growth.
"He makes life very difficult for traders," Dow said. "A lot of people blame him personally for the big technology decline this spring. But if you believe that what drives stocks over the long run is earnings, he's doing the right thing by creating an economic backdrop that would provide for reasonable earnings growth."
"This has been a market of extremes," said Alan Ackerman, market strategist for Fahnestock & Co., with some understatement. "Going into next week we've got a market that's going to attempt to stabilize after these wide swings."
Ackerman said strong corporate earnings "may put a safety net under levels as we move forward."
But don't bet on it.
"What we recommend is being diversified across styles, picking highly capable people within each style and then staying focused on the long term," said Hintz of Frank Russell, referring to mutual fund managers. "There are always people who pull their money out at a time like this. … But reacting to a down market by taking money out is a sure way to miss getting the upside." |
