Commentary--Elaine Garzarelli for September 8, 2000...
garzarelli.com
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Edited for ease of reading.
>>> Stock market analysis for September 8
We remain fully invested in the stock market as we believe the Fed will remain on hold in October and through year-end. The Fed funds futures also price in a favorable outlook.
The data suggests that the Fed has succeeded in slowing the economy, as factory orders dipped in July and employment dropped for the second consecutive month in August.
The cost of energy remains a drag on domestic as well as global economies. With oil at $35 a barrel and natural gas up at $5, consumer spending should moderate.
Consumer spending is struggling in many other countries. Japanese domestic demand is weak with household spending down, Hong Kong and Argentina's retail activities are struggling, and the French economy grew less than expected in the second quarter as consumer spending advanced at the slowest pace in more than a year. This should help to slow our export growth (Canadian and Latin American economies are also in slowing trends).
We look for a strong fourth quarter for the stock markets.
The Dow has been relatively unchanged for the past year and is down about 4% from its all-time high and the S&P 500 is down 1.6%. The Dow Jones Utility and NYSE indexes are the only ones to have hit new highs recently, while the NASDAQ remains well off its highs and down about 20%.
Groups we like continue to be 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.
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Interest rate/bond market analysis for September 8
Due to supply, the yield curve remains inverted with the 10-year note at 5.75% and the 30-year bond at 5.72% compared to short rates of around 6.0%.
We believe bonds should be part of one's portfolio and our bond model forecasts bond yields will continue to decline. The 10-year bond should reach 5.2% to 5.4% over the next 6 to 12 months (currently at 5.75%).<<< |
