Commentary--Elaine Garzarelli for October 6, 2000...
garzarelli.com
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Edited for ease of reading.
>>>Stock market analysis for October 6
September's employment report came in somewhat stronger than expected. Although unemployment fell in September to 3.9% -- matching a 30-year low -- manufacturing employment declined by 66,000 jobs after a 117,000 drop a month earlier.
All considered, employment growth has slowed to a moderate pace. Market participants did not pay as much attention to this report as they did to earnings' problems.
First Call reports earnings are expected to be up 16%, but there have been many negative preannouncements, and we would not be surprised to see more. Our S&P 500 earning's model predicts S&P 500 earnings growth at 7.5% next year compared to 16% predicted by the consensus.
At this writing, the S&P 500 is off 8%,the Dow 10%, and the Nasdaq 34% from their highs.
Markets are not doing much better globally as the Pac Rim's problems keep mounting with the KOSPI (Korea) down about 50%. In addition, the ECB (European Central Bank) surprised markets yesterday with a quarter point rate hike.
All this information is now old news, and looking into the future our 14-indicator stock market composite should improve.
As we wrote last week, we believe we are nearing the end of this stock market correction cycle and the bear market for the average stock (ex. tech, wireless) has already improved.
After analysts are finished lowering their earnings expectations, sentiment should get more negative and our indicators may rise to 65% -- at buy signal. Recently they rose to 61.3% from the cautious 28% level.
We continue to believe this is a sector driven market as many cyclicals continue underperforming. Our strategy remains to be fully invested in consumer nondurables like beverages, tobacco, energy, financials, foods, homebuilders and building materials, some technology, and utilities.
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Interest rate/bond market analysis for October 6
The recent FOMC meeting (October 3rd) became an non-event as markets assigned no risk to a hike at that meeting as well as through the rest of the year.
In fact, current Fed funds futures contracts are assigning a decent probability that we could see an easing by the end of the first quarter.
This is good news for the bond market and we continue to recommend bonds as part of one's asset allocation. We forecast a downturn in long rates (10-year bond) 5.2% to 5.4% by the end of next year. Currently the rate is 5.83%.<<< |
