Darrell, The Times agrees. No breadth, nicht zer gut: "The Dow Soars. The Market Snores.
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By GRETCHEN MORGENSON
WITH the Dow Jones industrial average threatening to top 10,000, stock market investors
may want to break out a bit of the bubbly and celebrate their good fortune. If so, better to
uncork some of the cheap stuff and leave the Dom Perignon on ice.
Not that a Dow 10,000 is a downer. By no means. It would be
another in a long line of historic, if psychological, milestones that
the decadelong bull market has blown past.
But the ascent of the Dow does not at all reflect what is
happening in the overall market. The 30 stocks that make up
the Dow represent just 20 percent of the entire stock market's
value. By comparison, the Standard & Poor's 500 stocks
account for 79 percent of total value, and the Wilshire 5000's
represent nearly 100 percent.
And while the Dow is soaring, the rest of the market is snoring.
In fact, fewer and fewer stocks have been rising. Most are well
off their peaks.
Here are the data, courtesy of Salomon Smith Barney's equity
research group: 92 percent of Nasdaq stocks and 86 percent of
New York Stock Exchange issues are below their highs by 10
percent or more. Stocks in the S.& P. 500 are doing better, but
the majority -- 70 percent -- are still 10 percent or more off
their highs.
Then there's what Salomon calls its laggards indicator, which
measures the number of common stocks that are lagging behind
the S.& P. index by 15 percent or more.
Today, three out of four companies are in that category, putting
the indicator at its highest level since it began in 1971. As a
comparison, in the bear market of 1973-74, fewer than 60
percent of stocks were laggards. In the bear market of 1990,
around half of all domestic stocks underperformed the S.& P. by 15 percent or more.
"There have been four times when the indicator broke 50 percent, and three of them were right
before significant market corrections," said Jeffrey M. Warantz, an equity strategist at Salomon
Smith Barney. "The market cannot continue for an extremely long time when it is supported by such
a narrow base."
And the market's advance is getting narrower all the time. For the 12 months ended in December,
the top 10 stocks in the S.& P. accounted for 43 percent of the index's gains. For the 12 months
ended Feb. 28, the top 10 S.& P. stocks contributed 49 percent of the index's performance.
The last time the market was dominated by so small a group of hot stocks was in 1973, the era of
the Nifty 50. While the rest of the market fell apart, the favored stocks -- Avon Products, Levitz
Furniture and Eastman Kodak, to name three -- climbed ever higher. Then, one by one these faddish
stocks fizzled. By December 1974, the Dow had lost 45.1 percent of its value.
Mr. Warantz thinks that a similar event is happening to today's Nifties. Dell Computer disappointed
investors with its earnings report earlier this month; Intel, Cisco Systems, Lucent Technologies
and Microsoft have all taken hits. As these stocks pulled the market up, so, too, can they drag it
down.
"It's imperative that investors not get lured into this narrow trap," Mr. Warantz said. "When I see the
market broaden, I'll break out the Champagne." |
