MARKET OVERVIEW
MARKET GROWS ON GROWTH STOCK NEWS
This week was similar to the last one, as a volatile market started on the
downside. The major news dealt with growth stocks. A cautious earnings
report from a high-profile retailer and financial problems at one of the
world's largest companies pushed the market lower. By Wednesday, however,
the market skyrocketed on a Tech rally, which lasted through Thursday.
And though the market ended the week on a down note, the Dow still managed
to post a seventh straight week of gains. The Nasdaq and the S&P 500
finished positive for the week for the sixth time in seven tries.
An encouraging report from LOWE'S (LOW, $39, down 3) could not bolster the
Retail sector on Monday. Tuesday's HOME DEPOT (HD, $25, down 4) results,
though better than expected, cast a pall over the sector. The nation's
largest home-improvement retailer saw same-store sales slip and lowered
its future guidance. On the news, the stock was hammered by over 10% and
finished the week down 12%. Home Depot -- one of investors' most popular
growth stocks -- has grown too big to keep up its former expansionary
pace. But the company still expects double-digit growth for the next few
years.
Another famous growth stock had cautious words about its future growth
prospects. Analysts speculated on Tuesday that GENERAL ELECTRIC (GE, $26,
up 2) would take a $1-2 billion charge to shore up financial problems in
its reinsurance unit. In Thursday's analyst meeting, GE announced a
charge towards the low end of the range but lowered its 2002 and 2003
estimates. The lowered estimates could put an end to GE's decade-long
streak of double-digit growth. The conglomerate, however, raised its
dividend, and investors rewarded the stock.
Investors ignited a mid-week rally in the Tech sector, home to a multitude
of growth stocks. A positive earnings report from HEWLETT-PACKARD (HPQ,
$19.15, up 2.25) fueled investors' hopes for a Tech and PC recovery, and
stocks in the PC and Chip sectors rose on the hope. But right now, hope
is all that there is.
Investors played both sides of the coin this week. On one side, they
boosted GE even though its status as a growth stock may be over. But on
the other side, they scooped up shares of a number of Tech growers. The
next six months will tell us which side is more profitable.
For the week, the Dow Jones jumped 226 points, or 2.6%, to reach 8805.
The S&P 500 followed with a 22-point increase, or 2.4%, to finish the week
at 931.
And the Nasdaq also rallied, adding 57 points, a huge 4.0%, to enter the
weekend at 1411.
ECONOMY WATCH
1. PRICES RISE, BUT NOT BY MUCH
The Labor Department announced that the consumer price index (CPI) rose
0.3% in October. Prices on core goods rose 0.2% in the month. The
figures fell right in line with economist expectations and provided a
stark contrast with last week's surprise jump in the producer price index
(PPI). This suggests that inflation is not as big of a concern as
previously thought. Fears of inflation would likely cause the Federal
Reserve to raise interest rates, which would further depress a weak
corporate investment environment.
2. HOUSING CRUMBLES
New housing starts declined 11% in October, to a less-than-expected annual
rate of 1.6 million. Construction of new homes reached an all-time high
in September, as the annual rate was measured at 1.81 million new houses.
This was the largest percentage drop in the figure since 1983, bring
housing starts to their lowest level since April. The numbers suggest a
slowdown in the hot residential real estate market, which has buoyed the
economy for the past two years.
3. JOBLESS CLAIMS FALL
Initial jobless claims for the week ended November 16 fell by a
larger-than-expected 25,000 claims to 376,000. This marks a four-month
low for the figure. Also, the four-week average dropped to 396,000 -- its
first move below the key 400,000 mark since August. Economists are quick
to point out, however, that the week was shortened by the Veterans Day
holiday, so these results are less meaningful.
4. OCTOBER LEADING INDICATORS FLAT
October's leading economic indicators index remained flat from September,
the first time the index has not declined since July. The index forecasts
shifts in the economy. A sharp drop usually suggests the onset of a
recession. Six of the index's 10 factors were positive for the month,
including money supply, core orders for capital goods, and interest rates.
Consumer expectations, however, were lower.
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