Briefing.com: Breaking Down the First Half of 2002
29-Jun-02 02:43 ET
[BRIEFING.COM - Robert Walberg] In most dramas the pain doesn't come until the second half of the production. Gone With the Wind, Fiddler On the Roof, Love Story, Titanic, Pearl Harbor and Wall Street are all good examples of movies that adhered to this simple rule. Unfortunately, in the real life version of Wall Street, investors had to endure plenty of pain during the first half of the year.
Over the first six months of 2002, the DJIA, S&P 500 and Nasdaq Composite shed 7.8%, 13.8% and 25%, respectively. When added to the declines registered in 2000 and 2001, the last 30-months have seen the major market indices plunge by 19.6%, 32.6% and 64%. In fact, all three indices are now below where they were at the start of 1999. That's one long, ugly downturn. And, just when you thought it couldn't get much worse, the market is now heading into its seasonally slow period.
But before we spend any time looking ahead, let's continue breaking down the first six-months of 2002. Though the performance of the major market indices was downright ugly, there were still some places for investors to hide. Chief among them was metals. Of the 10 top performing industries year-to-date, three of them are metals related: the Dow Jones Mining Index (51%), Dow Jones Precious Metals Index (35%) and the Dow Jones Nonferrous Index (31%). The Healthcare Providers (20%), Aerospace (20%), Savings & Loan (20%), Household Products (18%), Home Construction (17%), Clothing & Fabrics (15%) and Steel (15%) indices rounded out the best performers list.
Doesn't take much imagination or thought to figure out which groups paced the retreat - again! Seven of the ten biggest losers were tech-related. They were Wireless (67%), Telecomm (38%), Communications Tech (36%), Internet Services (36%), Computers (35%), Semiconductors (34%) and Fixed-Line Communications (34%). Thrown into the tech mix were Biotechs (38%), Pipelines (61%) and Broadcasting (37%).
One of the factors blamed for the market's big slide in Q2 was the lack of an earnings rebound. Cautionary guidance on the part of many companies, especially tech, drug, retail and financial has also weighed on sentiment as investors are being forced to look to Q4, or later, for compelling signs of a profit recovery. However, while the earnings news might not be getting good it's also not getting any worse. In fact, initial signs of a turnaround appear to be in place, as fewer companies (862 v. 1498) have issued negative preannouncements over the first two quarters this year than last. Should note that we're still not out of warnings season. As one Briefing.com reader reminded us, the first few days of Q1 saw a rash of negative preannouncements. If that pattern were to hold true again this quarter, then the warnings gap will narrow significantly. Nonetheless, at this late date, it's a safe bet that the end total for the first half of this year will be well below the number of warnings over the same period in the preceding year.
Another encouraging sign that the second half of this year could be more uplifting than the first is the economy. Though the economic data have taken a back seat to corporate scandal, fact remains that the recovery is taking hold. GDP rose by more than 6% in Q1 and we're also seeing improved order, employment and productivity numbers. Meanwhile, consumers continue to spend even though confidence is off its highs. The piece of the puzzle that's missing is a material pick up in IT spending. Without it, corporate profitability won't ramp up as quickly as many hope(d).
Briefing.com will leave you with one last piece of potentially good news. Though like most positives lately, it's wrapped in a negative. Regardless, the point we want to make is that bear markets often bottom during the midterm election year; with the bottom more often than not occurring in September/October. Obviously, if the pattern holds, then the bad news is we're in for at least another few months of choppy, downwardly biased trading. Looking at the brighter side, we could finally see a real bottom within the next few months. Just as it was silly to put much faith in the new paradigm, it can be equally dangerous to overstate the value of historical patterns. Nevertheless, with the market ending the first half of 2002 with such bleak numbers, Briefing.com wanted to end today's Brief on a hopeful note.
Robert Walberg, Briefing.com |
