"Barrons" 3-21-99 Going With the Flows - Interview With Laszlo Birinyi
Q: Obviously, a lot of people have problems with the narrowness of the advance, with the fact that the vast bulk of stocks still trail the S&P 500. Should we use any rally over 10,000 to get defensive?
A: No. The narrowness of the market is not unusual. What is unusual is how aware we are of it. In 1998, 50% of the gain in the S&P was in 13 stocks. And 20 stocks were 61% of the gain. Last year we took an in-depth look at data starting from 1965, the first year the S&P data are available. We eventually entitled our research "The Case Against Indexing," for obvious reasons. Back in 1965, to our great enlightenment, the two largest stocks in the S&P in 1965 -- AT&T and General Motors -- equaled the bottom 330 stocks. The S&P 500 is a market-weighted index. If Microsoft and General Electric and IBM go up, an awful lot of stocks can go down and the market can still be ahead. In fact, the market capitalization of the Russell 2000 is not equal to the market's capitalization of those three stocks. The reality is that this is the characteristic of the market today. All of a sudden, we have more knowledge about the market, more awareness about how it works, more sources of information. Lack of breadth is not of great concern to me. It's just the latest thing for those who have missed the market to be concerned about. The stock market isn't democratic. It doesn't matter how many stocks are up. It matters which ones. All it's describing when it's narrow is that you have to be very careful about what stocks to buy. If the market is broad, it tells you that perhaps asset allocation is more important.
Q: Let's talk about stocks. What's showing strong money flows right now?
A: The strong sector is still technology. With IBM, Xerox, Apple Computer, Texas Instruments, there's really no change there. No. 2, a lot of financial stocks. Foremost among these is the brokers. That's a real plus for the market. Here, Charles Schwab, Merrill Lynch, Morgan Stanley would be the first names. Followed by Donaldson Lufkin & Jenrette. |
