The Big Picture
Tuesday, July 10, 2001
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Stocks Trudge Ahead To Open Week
Investor's Business Daily
Stocks got a badly needed breather rally Monday after last week’s selling spell.
The Nasdaq ended a four-day losing streak, rising 1.1%. Volume dipped 3% to 1.40 billion shares, the fifth straight session below 2 billion. Big-cap techs did better as the Nasdaq 100 rebounded 1.7%.
Blue chip indexes also joined the rally. The Dow bobbed up and down throughout the whole session. It closed ahead 0.5%, taking back only a sliver of the 9.3% it lost over the previous seven weeks.
The S&P 500 large-cap gauge ended a three-day slide, up 0.7%. NYSE volume was nearly even from Friday.
While Monday’s gains were generally modest, the three major indexes beat the small-cap indexes — a rarity these days. The Russell 2000 index inched up 0.6% and the S&P 600 SmallCap just 0.2%. While most major indexes are still in the red for the year, the Russell and the S&P 600 are slightly positive.
Advancers surpassed decliners on both exchanges, a good sign. On the NYSE, the ratio was negative earlier in the day.
AT&T (T) led the Dow’s 30 components, gapping up at the open and surging 1.98, or 11.8%, to 18.71 on nearly triple average trade. Comcast (CMCSK) offered to buy its cable TV assets for $44.5 billion. Despite the big move, it’s still 29% off its 52-week high. The Telecom-Services industry group, meanwhile, has continued to slump in the market. It’s ranked 172nd among 197 groups in terms of six-month relative price performance.
Merger hype may give a sector a boost in the arm, but the effects are usually temporary. For a long-lasting run, strong earnings and revenue increases provide the muscle.
By that measure, telecoms have been avoiding the gym these days. After the close, Corning (GLW) said it would take a $5.1 billion second-quarter charge, cut 1,000 jobs and shut down three plants. Alcatel (ALA) said it’s cutting another 2,500 jobs in the U.S. Corning is 86% off its high, Alcatel 81%.
In May, mutual funds decreased their cash position from 5% to 4.8%, the lowest level in nine months.
That might not sound like a big deal. But consider this: Equity mutual funds had a total net asset value of $3.74 trillion dollars as of May, according to the Investment Company Institute, the mutual fund industry’s lobby arm. That means more than $7 billion possibly went into the stock market last month. A couple billion can send some stocks a long way.
So where is the money going? Check the “Where The Big Money’s Flowing” tables for the NYSE (Page A10 in the print edition) and the Nasdaq (B6), as well as the New Highs List. You’ll find plenty of high-quality small caps in the finance, medical and other industries. Take Doral Financial (DORL). The lender gained 1.19 to a new closing high of 34.69 on heavy trade. It has a 96 Earnings Per Share Rating, an A for Sales+Profit Margins+Return On Equity, and lots of cash and cash-like assets.
The market’s action does make sense. The Fed’s six rate cuts this year have boosted refinancing and businesses that depend on consumer loans. IBD’s Building-Mobile/Mfg. & RV subgroup, which includes motor coach makers Monaco Coach (MNC) and Winnebago Industries (WGO), is ranked 31st.
The economy is still slow, so medicals are seen as a safer, defensive area. Those with stable or growing earnings and a solid balance sheet are doing well. |
