This Kind of Article Really Helps TRAC
Stock Market On Fire
(Last updated 3:15 PM ET April 10)
By Pierre Belec
NEW YORK (Reuters)
- Time to stuff money
into bed mattresses?
Few investors have any
reasons to brag about
their 401(k) and IRA
retirement plans this year. The average stock fund in the first
quarter fizzled out like a wet fire cracker while the Dow Jones
industrial average and other stock market gauges soared.
The diversified fund customers saw their wealth increase a lousy
0.93 percent over the last three months, according to Lipper Inc.,
a Reuters Group company. It happened as the Dow gained 6.6
percent, setting eight record highs and popping through the
10,000-point mark.
The Standard & Poor's 500 stock-index rose 4.7 percent in the
quarter and the Nasdaq index jumped 12 percent.
Fund holders would have done better by investing in the ultra-safe
money funds, which paid out 1.07 percent.
What gives?
"While the Dow and S&P jumped to new highs, the gain in the
overall market was extremely narrow and limited to the biggest of
the big-cap companies, particularly the technology sector," said
Arnold Kaufman, editor of Standard & Poor's outlook, an
investment advisory newsletter.
The people who enjoyed Wall Street's bonanza were those that
held individual stocks such as Microsoft, Intel, America Online
and other high-flying Internet stocks.
But while most fund holders are not kicking their heels over their
first-quarter returns, neither are they taking it lying down.
"The inflow of cash into stock mutual funds has been going down
and it says that people are not happy with these funds," Kaufman
said. "Some investors are now doing their own stock picking and
they're piling into the already elevated technology stocks, the
Nasdaq favorites and the Dow blue chips."
This "Do it yourself" type of investing helped drive the Dow and
Nasdaq to record highs this week, he said.
There is a distinct feeling of "once bitten, twice shy" among fund
traders who saw a huge chunk of their retirement money
evaporate during last summer's head-spinning fall of 1,500 points
in the Dow.
"People are giving up on the second tier stocks -- the small and
mid caps," Kaufman said.
Investors typically hold a mix of large, medium and small
companies via stock index funds. But since last year, only the
biggest names have gotten bigger.
The S&P index of medium-size companies is down 6 percent so
far this year and the Russell 2,000 index of small stocks lost 5
percent.
"People are looking at their investment portfolios and saying,
'Gosh, why am I in this dull, old index fund while I could own only
technology and Internet stocks and would be doing so much
better?"' said William Valentine, investment manager at Valentine
Ventures LLC.
The Investment Company Institute, a mutual fund lobby group in
Washington, reported that the net flow into mutual funds slumped
to $750 million in February from $17.1 billion in January.
"For the first time since 1990, people are cutting back on their
fund investments and there has been a clear cut movement to the
'do it yourself' concept of investing," Kaufman said.
"This year's Nasdaq rally precipitated the shift," he said. "The
faster the Nasdaq rose, the more investors wanted to buy the
winners and they didn't care much about valuations."
The proof is that the technology-laced Nasdaq Composite index is
now up a whopping 80 percent from its October 1998 low while
the broader market is stuck in the mud.
Is this sort of investment dangerous at this stage of the game, with
the market rocketing to the moon?
"It's the typical late stage of any kind of speculative bubble and it's
the time when the market draws the most money and it is very
dangerous," Valentine said.
He said investors appear to be abandoning the game plans that
they have learned over the last 10 years, such as investing for the
long-term and letting stocks ride out their bumps and aiming for a
diversified portfolio.
"All of this is being thrown by the wayside," Valentine said.
"Today's mantra is buy Internet and buy technology."
Wall Streeters say that over the short term, the environment is still
positive for stocks. The market's failure to respond bearishly to
the Yugoslavia crisis was a big plus.
"When any market is given an excuse to decline and does not, this
is indicative of a positive short-term technical structure," said
Martin Pring, president of the International Institute for Economic
Research, a Gloucester, Va.-based investment consulting firm.
But Pring, a master market technician who uses jargon such as
moving averages and head and shoulder formations, said the
long-term picture is quite different, and the odds point to a
reversal of the market's current upward trend.
The popular stock indexes may be on a course to set four-year
tops. When the technical numbers turn bearish, the market's fall
could be "unusually significant," he said.
"Rarely this century have we ever witnessed such an
ominous-looking combination for the Standard & Poor's index,"
Pring said.
Don't jump ship yet, he said, because the technical indicators are
still in the process of topping out. "However, when they are
completed, a major bear market is likely to unfold," Pring warned.
For the week, the Dow Jones industrial average was up 341.33
points at 10,173.84. The Nasdaq composite index gained 99.68
at 2,593.05, a record high and the Standard & Poor's composite
index of 500 stocks rose 54.63 at 1,348.35, a new high. |
