Tom, I found this e-mailed article to me "soothing" and may have prevented me, along with your posting, from doing something hasty.
Best,
Sally
Dear Sally,
Market Commentary from STOCKFIRST Investment Strategies For The Smart Investor
June 11, 1999
Volume I, Issue 1
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Stockfirst Market Commentary seeks to provide accurate and timely commentary and attempts to highlight issues or markets which may be of possible current interest.
The week that passed by.....
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Markets endured yet another week of added volatility as lack of liquidity magnified each move to the upside as well as the downside. Still, over the past couple of weeks, we have pretty much gone nowhere in the popular indexes. One exception, the bond market...Oh yes, the bond market I guess we need to look at that too. (But I thought all we had to do was pick good stocks.) Bonds had another ugly week as traders and investors poked the yield on the 30-year benchmark above that dreaded 6% level, appearing to have already factored in a .25 point tightening by the FED at its FOMC meeting at the end of the month. Even Friday's release of PPI numbers couldn't really spark too much of a reaction, as all eyes continue to focus on Wednesday's upcoming release of CPI numbers. Of course you remember the April CPI number (released in May) spooked the bond market and sent stocks running for cover. So, next week will be interesting. The rather tame PPI report was somewhat overshadowed by the Retail Sales figures, which rose 1% in May, behind a 2.5% jump in autos. These sales figures show that consumer spending is still strong, which concerns the Federal Reserve as it prepares for its crucial June meeting. Interestingly, back in 1997, bond yields increased so much in their discounting of a FED increase that they actually declined after the fact. That could indeed be the case here as well; however, we are still not convinced that the FED will make any action whatsoever. At this point, we'd probably give it a 50-50 shot...
This past week also saw Japan reporting its best positive growth numbers in the last 15 months. Semiconductor stocks certainly benefited from reports that Intel would be adopting the next generation of semiconductor manufacturing technology earlier than had previously been anticipated. Interest rate sensitive stocks had a pretty tough period, as did the Drug sector amid Clinton's threats of lower prices to accommodate Medicaid. Internet-related issues also continued to take profits from their April highs..All in all, as we've discussed in recent commentaries, late May through June would indeed be choppy, but the good thing is it's almost completed!
Market next week.....
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Okay, before we proceed, let's go over a trend that continues to unfold in the stock market. There are two major catalysts for stocks improving in value: favorable corporate earnings and a cooperative interest rate backdrop. Well, by mid-May, the majority of earnings reporting season was over. That left us with nothing to really jump up and down about except..you guessed it interest rates! Considering the somewhat robust economic numbers we've been recently reporting, bond yields have worked higher and the FED's comments toward a tightening bias left us with puzzled looks. What are we doing in stocks right now while we probably won't be getting any GOOD news until earnings again in July?!? Larger cap issues were most notably affected in a negative manner; yet, of keen interest, the small to midcap sectors held up fairly well. In fact, through a difficult May period, when most of the popular averages were down, the Russell 2000 index actually eked out a gain. So, we are seeing some interesting developments here. One way or another, we'll get some closure on "will the FED?" or "won't the FED" on interest rates, but even more importantly, we are soon to enter earnings season.
For all the misery we've suffered here on strong economic reports hurting the bond market - we will finally see some benefit from all of this as this economic strength should be translated into some truly outstanding corporate earnings. So, why have we held our stocks through this "rest" period? Well, its all an individual case. If you are in good stocks with strong earnings visibility, then this rest period will have really meant nothing but just a time not to even look at your portfolio. But for those of us who look at every uptick and downtick, it's been like pulling a bandaid off. Yet, as mentioned, its almost done and we see very bright blue skies for this summer rally which could see DOW recover to new all-time highs and possibly even approach the elusive 12,000 mark over the summer. But remember, after earnings season, we'll be back to a lull. So, fool me once and shame on you but fool me twice......!
Of course, the big story next week will again be bonds and interest rates, which should come to a head with the release of Consumer Prices on Wednesday, coupled with the Beige Book report. Again, it shouldn't really matter as long as you are in good stocks. In fact, as we've mentioned, this rest period has created and will continue to create over the next week or so, some incredible bargains that we will look back at like we did at the October 8, 1998 bottom, which was probably one of the best buying opportunities in years. We have to look at technology because that is our future. We need to look at some of the on-line brokers, because that's the future too (as Merrill Lynch says)..but we really need to give strong looks at the midcap arena because dollar flow into these issues will create huge order imbalances to the upside and that is where many money managers are currently looking. We've still got some earnings ahead (but nothing like July) as reports next week will include Oracle, Jabil Circuit, Adobe, Integrated Systems and American Greetings..Upcoming splits will include AHome, Cisco, Gap Stores, Tandy, Go2Net, Biogen, Mindspring, Colgate-Palmolive and Pfizer. In sum, buckle up as it still will be choppy but it's almost time to rally!!
About Stockfirst.com
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