S&P-Arnie Kaufman's "Ride Out the Storm", 9/1/01...
businessweek.com
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Rearranged some.
>>> SEPTEMBER 1, 2001
THE OUTLOOK • From S&P
By Arnie Kaufman, editor of S& P's weekly investing newsletter, The Outlook
Ride Out the Storm
Pessimism has deepened.
The chances of a capitulation that exhausts selling and leads to an upturn have increased.
With only losses to show for any recent heroics, investors are choosing not to put more money at risk. Those betting on a down market clearly have the upper hand.
The S&P 500 index has slid to within 3% of its early April low. The Nasdaq composite and Dow Industrials are 10% and 6%, respectively, from their lows. If the decline can be halted before the lows are breached, buyers would be encouraged. But the odds on a successful stand are long, given the string of failed rallies.
Patience regarding the economy, meanwhile, is being strained. The tax rebates are helping keep a recession at bay, but no growth has yet been seen.
The incentive to buy stocks is also being thwarted by seasonal concerns. The September-October period has more often than not been unkind to investors over the years.
If there was complacency before, there isn't any now. The latest slide has gotten investors' attention. With negativism pervasive, a selling climax may well develop. Climaxes are characterized by panicky dumping of stock, forced in part by margin calls. The plunge proves cathartic and allows prices to rise easily and significantly.
In any event, we at S&P believe this is a time to stand fast.
The groundwork is in place for a recovery in the economy and in corporate profits.
Inventories have been worked down, and the beneficial effects of the fed funds rate cuts since January should start to be felt within the next few months.
The fuel exists to power a strong market recovery.
... Cash reserves are sizable.
... So are short positions, which would likely be quickly reversed through buying once stocks start showing signs of rebounding.
The gloom and doom now in evidence is typical of the final stage of a bear market.
While some more weakness may be seen in the period just ahead, we would sit tight. <<< |
