I have been pounding home the message for weeks now (follow the attached link I am responding to) and all of a sudden the chinese bamboo tree has sprouted and soared to the blue sky over night. What has changed? Psychology of the market and voters have finally decided to stop listening to the noise and hear the symphony play and look beyond and see a rainbow at the end of the nasty storm.
Signs of Recovery Whet Investors' Appetites, May Drive U.S. Stocks Higher
from Bloomberg
Signs of Recovery Drive Indexes Higher: U.S. Stocks Outlook
By Robert Dieterich
New York, March 2 (Bloomberg) -- The Standard & Poor's 500 Index and Dow Jones Industrial Average had their biggest weekly gains since September this week and may keep rising as investors anticipate the recession has passed.
The biggest gains came yesterday, as all 30 Dow stocks rose, the index of semiconductor companies had its biggest advance since April, and 360 companies reached 52-week highs, more than double the 155 that touched 52-week lows.
``All the signs are pointing toward a recovery,'' said Bruce Bartlett, manager of the $6.5 billion Oppenheimer Growth Fund.
While the Nasdaq Composite Index outpaced the other two benchmarks this week, the Dow is the only one that has climbed this year, underscoring investors' appetite for companies outside of the technology and telecommunications businesses and with straightforward accounting practices.
Honeywell International Inc., the biggest maker of cockpit electronics for aircraft, and American Express Co. led the Dow higher this week.
``People are saying, `If the economy's going to get better I want to be in those stocks,''' said Tony Maramarco, manager of the $440 million Babson Value Fund in Cambridge, Massachusetts. ``These companies are going to have earnings. Many technology companies aren't.''
Gains
The Dow average has gained five of the past six weeks, including a 4 percent advance this week. The index is now up 3.5 percent for the year.
The Nasdaq rose 4.5 percent, snapping a five-week losing streak, and the S&P 500 climbed 3.9 percent, its best weekly performance since September.
For the year, the Nasdaq has pared its loss to 7.6 percent, and the S&P 500 is now off 1.4 percent.
The rally faltered in mid-week, reflecting skepticism the recovery will be strong enough to drive the profit rebound some expect.
The economy is ``close to a turning point,'' and should begin growing at a slower pace than after previous recessions, Federal Reserve Chairman Alan Greenspan said in congressional testimony Wednesday.
The next day the government said the economy grew at a 1.4 percent annual pace in the fourth quarter rather than the 0.2 percent pace initially estimated.
And yesterday, the Institute for Supply Management said U.S. manufacturing grew in February for the first time in 19 months, dousing some of the skepticism, at least for a day.
The rebound is ``going to be more moderate'' than people expect, said Bartlett. He wants to own companies that don't depend on an economic revival to increase sales and profits, citing retailers Kohl's Corp. and Target Corp. as examples.
The S&P 500 trades at about 62 times earnings, according to Bloomberg data, up from about 50 times at the beginning of the year. The decline in earnings outstripped the slump in stock prices, driving up the value of each dollar of profits and making stocks, on average, more expensive.
Cyclical and Simple
The rise in price-earnings ratios reflects signs of new growth that is driving economically sensitive, or ``cyclical,'' stocks. Caterpillar Inc., the biggest maker of earth-moving machinery, has gained 7.7 percent this year.
Charlie Crane, who helps manage more than $4 billion at Victory SBSF Capital Management, has emphasized capital goods, basic materials and energy stocks. ``You want to have a cyclical flavor to your portfolio,'' he said.
Crane said the economy will probably grow 3 percent to 4 percent this year, outpacing the expectations of most investors.
``Cyclicality has been favored'' so far this year, he said. In addition, ``simplicity has been favored over complexity,'' he said. Following the collapse of Enron Corp. last year, investors have been shunning companies if their financial accounts seem complicated enough to hide debts or losses.
Novellus Rises
Novellus Systems Inc. advanced 22 percent. The maker of semiconductor equipment said quarterly sales may beat estimates as demand improves. That lifted other makers of chip manufacturing and testing equipment, including Teradyne Inc., which also added 22 percent.
PerkinElmer Inc. fell 33 percent, the biggest loss in the S&P 500. The maker of laboratory and electronic equipment cut its profit forecast citing weak demand in the telecommunications and semiconductor markets. Waters Corp., a rival, slipped 13 percent.
Next week, investors get data on factory orders Wednesday, the Fed's assessment of economic activity known as the Beige Book, also on Wednesday, and February unemployment data Friday.
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Best Regards, J.T. |
