I can't believe how Bullish Briefing has become...seems like they're really going out on a limb....
Updated: 04-May-01
General Commentary
Did Thursday's broadbased decline mark the end of the recovery rally? I'll answer that question with this quote from Winston Churchill: "it is not the end, nor is it the beginning of the end, but it is, perhaps, the end of the beginning." After an electrifying 4-wk advance that lifted the Nasdaq by nearly 38% from its lows, noboby should get overly alarmed by a measly 74 point, or 3%, decline... Especially not one that comes the day before an employment report, and on the back of a 4-day, 9% rally... Yet, the theme of the day was "it's over."
As we noted on this page yesterday, the sector was due for a few days of backing and filling... Such corrections are normal, and by no means alter the underlying improvement in the market... In fact, Briefing.com is encouraged by the pessimism that was so prevalent Thursday... It's the mirror image of what was taking place at this time last year... At that point in time, bulls were the loudest voice... Despite a sizable break in March, the majority on the street pointed to a robust economy and strong earnings growth as reason to buy the dip... Now the bears point to a soft economy and lousy earnings as reason for selling into gains... But just as the big sell-off in March 2000 precipitated the drop in economic/earnings growth, the current rally foreshadows an improvement in economic/earnings growth late this year... Market shifts tend to precede fundamental shifts... That's why the market is a leading economic indicator.
The message of the markets (sorry Ron) is simple - the economy and corporate earnings will trough in the next few months and begin to accelerate by late Q3/early Q4... Heeding that message, institutional investors are moving money out of bonds/short-term treasuries and into stocks, US stocks... Given the sharp drop in the Nasdaq over the past year, they are hunting for bargains in tech... And why not? The long-term growth prospects in tech remain well above that of most sectors.
Has the sector moved ahead of its fundamentals during this rally? You bet... But that is always the case at turning points... Consequently, investors shouldn't wait for a big correction to make the market cheap again... It's not going to happen... Institutional investors will use any dips to increase exposure to the market/sector for fear of underperforming yet again.
While Wednesday's peak may mark the top of the rally's first thrust, it in no way marked the end of the overall advance... This bull market is just getting warmed up. |
