Commentary by Elaine Garzarelli for August 11, 2000...
garzarelli.com
Edited for ease of reading.
Stock market analysis for August 11
Our newsletter subscribers know that our indicators have been at 28.3% for quite sometime, indicating a cautious market environment (below 30% is considered a cautious level).
We still believe the overall market is overvalued by about 20%, but believe investing in undervalued groups (mentioned above) is key to superior returns. Our fund Forward Garzarelli Equity (FFDEX) uses this methodology and has had excellent performance.
Groups we like continue to be beverages, energy, financials, foods, homebuilders and building materials, some technology, tobacco, and utilities. We recommend staying out of overvalued cyclicals such as aluminum, automobiles, chemicals, machinery, metals, papers, and steel.
We believe there will be more positives than negatives for our stock market indicators in the further since, we believe, the Fed should not tighten further.
The volatility in the stock markets continues as this earnings season is causing investors to change from fear of Fed tightenings to earnings disappointments.
Bottom-up analysts have high expectations that earnings will continue to grow at double digits next year. However, our work shows earnings growing only 7.5% in 2001.
This week marks the 11th week of low inflation news. The Beige Book reported restrained pricing power recently, the CRB spot commodity index hit a new low, and even Wal-Mart said more discounting is likely. The FIBER leading inflation index showed quite a surprise (Geenspan's favorite inflation indicator, we believe) -- details available for subscribers.
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Interest rate/bond market analysis for August 11
After eight consecutive months of net outflows, bond funds went into positive territory in June -- the first positive cash flow since July 1999.
Our bond model still forecasts no rise in yields based on low inflation and the budget surplus and we continue to recommend bonds as part of one's portfolio.
We forecast bond yields should decline over the next 6 to 12 months to 5.2% from 5.75% currently.
In addition, we like BAA corporates -- now yielding 8.25% compared to their May 18th peak of 9.08%. <<< |
