Briefing advises investors to sell into any Fed Cut Rally
Updated: 26-Jun-01
General Commentary
Remember the Gatorade ad campaign, "I want to be like Mike (Michael Jordan)." Well, apparently Mike Capellas, Compaq's (CPQ 13.90 +0.40) CEO, has decided that he wants to be like Lou (Gerstner)... Or at least he wants his company to be more like IBM... In a stunning announcement, CPQ has decided to throw in the towel on the hardware business and emphasize software and services... On its surface the move makes sense in that the PC business has slowed down, pricing is very competitive and software and services are higher margin businesses... But before we applaud Capellas for his "vision," let's remember that the company has basically floundered under his management... And now he wants to steer the world's number one PC maker in a completely different, unproven direction, and we're supposed to jump aboard... No thanks.
New course makes CPQ a major question mark for the foreseeable future and a stock we would avoid... On the flip side, news that CPQ will de-emphasize its PC business is good news for chief rival Dell (DELL 24.25 +0.84)... Company's reputation and low-cost business model leave it well positioned to steal the majority of CPQ's market share.
Aside from the CPQ news, Monday was relatively quiet... Nasdaq fought through weakness in the blue chip indices to post a modest gain... Net stocks were among the best performers, as traders began speculating that the dot-com advertising market has bottomed... Gainers included Yahoo! (YHOO 19.77 +2.46), DoubleClick (DCLK 13.61 +1.52), eBay (EBAY 71.04 +3.25) and Amazon (AMZN 12.81 +0.41)... Generally, however, traders were reluctant to take big positions ahead of Wednesday's decision by the Fed.
Most pundits expect Greenspan & Co. to announce a rate cut of 50 basis points, though few would be surprised by news of a 25 bp cut... Though economic conditions seem to warrant additional easings, Briefing.com not sure that market will get much bang from lower rates... As we noted in yesterday's Stock Brief entitled, "A Case of Less is More," traders would rather see signs of an economic/earnings turnaround than one or two more rate cuts.
Having already slashed rates by 250 basis points since the year began, Fed's job is mostly done... The key to sustaining upward momentum in the market now shifts to corporate earnings... In order for buyers to gain/maintain conviction, they need to know that profits have bottomed... News of a 50 basis point rate cut would offer no such hope... Consequently, if Fed lives up to current expectations and lowers the funds rate by 50 basis points, Briefing.com would sell into any initial gains.
Robert Walberg |
