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Technology Stocks : Semi Equipment Analysis

SOXX 309.36

+2.2%

Dec 3 4:00 PM EST

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To: Return to Sender who wrote (12435)	11/8/2003 9:57:46 PM
From: Donald Wennerstrom	Read Replies (2) of 95520

Thanks for posting Jim Brown's report on Les's thread. I thought he did a nice job of explaining how "too much good news" kept the market down last week. I am copying a few paragraphs below, but I recommend reading the whole article for those who haven't. Message 19481261 <<While the gain of +286,000 jobs was great it still has not put a dent in the unemployment rate which is still 6.0%. Over 8.8 million workers are still unemployed. A sustained jobs growth of 150,000 per month is needed to overcome the normal growth in the workforce. I am not complaining but just explaining. The +286K is light years ahead of the trend for the last year and a solid foundation for the current economic recovery. Analysts and traders have constantly claimed that the recovery would not be official until the job creation caught up and this is a significant step. Add in the huge drop in Jobless Claims to 348,000, the jump in Productivity by +8.1%, GDP to +7.2%, ISM to 57, ISM Services at 64.7 and a +6.5% jump in semiconductor billings and you have clearly the best economic news in months if not the entire year. What did the markets do with this news? They traded mostly sideways with the Dow gaining only +8 points for the week. Ok, now what happened? Why did the indexes suddenly swoon on the good news? As I explained in my commentary on Thursday the news is simply too good for investor sentiment. The Fed has said repeatedly said it would remain on the sidelines for a "considerable period" of time to allow the economy to ramp up before adjusting rates. Before Friday's reports the futures were not predicting the first rate hike until May with the second one not until the 4Q-2004. A considerable period of time considering the extremely low rates. After Friday's reports the futures are now showing an 85% chance of a hike in March. The jump in the date by a couple months is very material and is causing a rethinking of market planning. The next Fed meeting is four weeks away and the worry now is that the Fed will take the "considerable period" statement out of their announcement and possibly change their bias to tightening. This is a major change of direction and institutional investors will have to rethink their bond and equity allocations. I hate to keep repeating this but markets typically discount 3-6 months ahead and the flat Fed until May had already been priced into the market. Shortening that period by 30% puts the next rate hike and the changing of bias by the Fed well into that six month window. Now investors will be buying stocks based on the expectations of rates rising quickly if the economics continue to be strong. Any potential rate hike will be offset by an increase in earnings IF the recovery continues. In the early stages of an economic recovery rates do rise and investors are used to that model. The big difference here is that they could rise much earlier and much quicker than expected just a week ago.>>

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