Commentary--Elaine Garzarelli for 10/20/00...
garzarelli.com
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Edited for emphasis and ease of reading.
>>>Stock market analysis for October 20
Volatility continues in the stock market with the NASDAQ having two +8% days in five trading days.
A combination of the past Fed tightenings, higher oil prices, and worrisome corporate earnings reports has created much uncertainty in the stock market.
The economy, however, is fine with this expansion now in its 116th month -- 10 months beyond the previous record.
The direction of the stock market, short term, should be driven by how well the earnings outlook for the rest of the year influences both domestic and international capital flows.
Since our stock market indicators are now in a high neutral territory at 60%, up from the cautious 28%, we believe the end of this correction cycle is hear or near, and we recommend taking advantage by buying cheap stocks that have already corrected 40% to 60%.
A level of 65% for our indicators would be an outright broadbased buy signal.
We are investing in energy, financials, foods, homebuilders and building materials, and technology (especially semiconductors).
Three groups we downgraded due to full valuations as a result of sharp price gains are: beverages -- alcoholic such as Anheuser-Busch (BUD) and Brown-Forman Corp. (BF.B), drugs such as Merck & Co. (MRK) and Pfizer, Inc. (PFE), and household products such as Kimberly-Clark (KMB) and Procter & Gamble (PG).
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Interest rate/bond market analysis for October 20
We see no more moves by the Fed for some time.
The fed funds futures market is pricing in a quarter point decline by this Spring and our bond model continues to show that bonds should be part of one's portfolio.
We still recommend buying bonds since we predict the 10-year yield should decline to 5.3% to 5.4% by the end of next year and currently the rate is 5.65%. <<< |
