Little Good News in Sight
By Bill Meehan
Special to TheStreet.com
8/8/01 9:03 AM ET
URL: thestreet.com
In a relatively slow week for economic data, the government's first estimate of second-quarter productivity and unit labor costs took on an air of increased importance. The "good news" was that the data were better than economists expected, and the much-talked-about "crash" prediction turned out to be just another bad call. My opinion that, due to the tech sector's dismal state of affairs, productivity would fail to meet consensus was also off the mark. In fact, first-quarter productivity was revised to a small plus.
Get Real About the Economy
However, headlines about a productivity "surge" were also far from accurate. In reality, the 1.6% year-over-year growth was the lowest rate seen in the longest U.S. economic expansion ever. Plus, it was a function of the largest monthly decline in average hours worked since the last recession. As consumers are expected to carry the global economy on their collective backs, it's hard to view a precipitous decline in the workweek as being a big plus, unless you happen to be long Uncle Sam's paper.
Wednesday brings business inventory data and the Fed's Beige Book, which analysts will peruse for the central bank's current economic assessment ahead of the upcoming Federal Open Market Committee meeting.
The heat wave that's choking much of the country will continue to keep things quiet in terms of volume, as the temperature in New York is expected to approach the triple digits. However, things might heat up a bit inside the air-conditioned canyons of Wall Street, as the Philadelphia Stock Exchange Semiconductor Index, the S&P 500 and the Nasdaq Composite all test support levels at the open. With "hot money" the dominant force in the dog days of summer and with the fundamentals very hazy at best, technicals are likely to play an increasingly important role in the short term. If stocks like Intel (INTC:Nasdaq) and Microsoft (MSFT:Nasdaq) roll over, which looks likely to me, it might be safe to conclude that the illusive summer rally has already come and gone.
Not Much Optimism
Of course, investors had another reason to watch, rather than act, in Tuesday's languid session, waiting for Cisco (CSCO:Nasdaq) to report after the close. The erstwhile technology bellwether's spin failed to lift the stock. While fourth-quarter earnings of 2 cents a share were in line, revenue was at the low end of expectations and the current quarter promises little, if any, growth. Merrill Lynch slashed Cisco's estimate by 50%, but kept its long-term buy recommendation. Emulex (EMLX:Nasdaq) also warned after topping consensus by a penny. Needless to say, the tech sector swooned, and Globex futures remained below fair value Wednesday morning.
Little in the way of good news was coming from Europe, which Cisco fingered as a big reason for its current sluggishness. A day after BASF disappointed, Bayer was getting pummeled on news that it was pulling its anti-cholesterol drug Baycol/Lipobay, which was a big part of the company's expected revenue. Telecom stocks were also being pounded in the aftermath of the Cisco conference call and Merrill's negative comments. Even if we assume improvement in the domestic economy because of fiscal and monetary stimuli, the headwinds from the other side of the pond threaten to keep a recovery here from being remotely robust. While the deterioration in overseas economies can hardly be seen as new news, it's safe to assume that analysts will cite global weakness as an important reason for further cuts in next year's earnings estimates.
While retailers posted decent gains Tuesday, more than a few look as if they're vulnerable technically. Same-store sales reports are due Thursday, and stocks such as AutoZone (AZO:NYSE), Home Depot (HD:NYSE), Lowe's (LOW:NYSE) and Tiffany (TIF:NYSE) look to be potentially profitable trades from the short side, even as I'm holding small longer-term positions in Home Depot and Tiffany. I'd also view any rally attempts in techland, particularly in the semis, as a good chance for aggressive traders to sell. We're unlikely to get much good news any time soon, and the oppressive heat might fray already frazzled traders' nerves. |
