POINT OF VIEW: Stock Market Suddenly Has No Worries
04 Mar 16:38
By Neal Lipschutz
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Someone must have turned back the clock, because all of
a sudden the U.S. stock market is surging like its 1999.
In just two sessions, the Dow Jones Industrial Average has climbed 4.7%,
starting in the already relatively bullish neighborhood of 10,100 and now
standing at about 10,587 and counting.
The Nasdaq Composite Index, which had lagged the Dow 30 recently, has
experienced an even more startling jolt, climbing 7.4% in two sessions.
All this apparently because traders and investors have become economists and
decided that it's smooth sailing ahead. There's all sorts of learned talk
floating around making reference to inventory run-offs and citing a bottom in
manufacturing.
Sure the economy seems to be firmly on the mend. But that doesn't mean
investors have divested all their worries.
In the spirit of the Federal Reserve's adept and consistent removal of the
proverbial punch bowl once the party gets going, let's recount a few reasons
for stock investors to fret:
- Economic recovery doesn't necessarily mean a healthy rebound in profits.
Much has been written about how 2002 might witness a "profitless" recovery or
some reasonable facsimile of it. Global competition has robbed many companies
of pricing power, there's still overcapacity in many industries, and costs at
most companies have already significantly been cut. All that doesn't bode well
for a sharp profit snapback, even if the broad economy chugs ahead.
- The Enron effect hasn't gone away. Which means that if many more
significant sized companies are shown to have engaged in what, post-Enron,
appears to be aggressive accounting, the broad market might suffer.
- Individual companies will still disappoint. Take Oracle Corp. (ORCL), which
late Friday said it wouldn't make its numbers. The broad market shrugged off
the news, but Oracle's comments won't be the last of that kind.
- World events are sobering. Escalating violence in the Middle East, fresh
reports of U.S. casualties from fighting in Afghanistan, firming prices for oil
and the like all carry the potential to sap stock market enthusiasm.
Maybe the one broad, fundamental truth that the U.S. economy is posed for
significant recovery is enough to keep this stock market going. But some
backing and filling after two surprisingly strong days is likely to be the more
realistic scenario.
Neal Lipschutz is senior editor, Americas, Dow Jones Newswires.
- By Neal Lipschutz, Dow Jones Newswires, 201 938 5152
neal.lipschutz@dowjones.com
(END) DOW JONES NEWS 03-04-02
04:38 PM |
