And this is a broad sort of article on where the market is today. It doesn't mention rmbs in particular (or any other stock, I think), but it provides a nice perspective. I'm highly bullish on rmbs, and as some of you know, have been averaging in just about once a week for the last month. Let me know if the following P.O.V. sparks any thoughts:
Everything's Happened, So Market Asks
What Happens Next
By Justin Lahart
Senior Writer
6/18/99 7:05 PM ET
The inflation report came and went. The guy with the glasses
went up to the podium, spoke and shuffled away. Treasuries
put on a rally that took the yield on the long bond back
below 6%. The Dow Jones Industrial Average tacked on
365 points. Now what?
It's a difficult question to answer, and how it is answered will
determine the market's theme not just for the coming week
but beyond. There was a sense, when the bell rang to close
out the week on Friday, that Wall Street's interest-rate
obsessions were behind it. The May Consumer Price
Index had shown people that while there are some upside
risks to the economy, it's by no means running out of
control. Alan Greenspan had told the country that he and
his colleagues were going to hike rates by a quarter point
when they met on June 29 and 30 and then see.
There is general sense that earnings will begin to come to
the fore. Companies won't really start to report their
second-quarter numbers until the second week of July, but
investors are already beginning to handicap what the
numbers will look like. Generally, in these waning days of
the quarter, the forthcoming earnings have a negative effect
on the market. It is preannouncement season, the time when
companies that aren't executing go to confession.
When they do, however, you don't hear things like: "We
screwed up. Everybody else in our sector is kicking butt, but
we completely lost our competitive edge. There's nobody to
blame but management for this lousy quarter. We'll be out of
the office for the next couple of weeks because we're going
up to the Maine woods to sit in a sweat lodge, beat on
drums and work things out."
Instead, you often hear about how tough things are across
the sector. How a "slower than anticipated recovery in
several key markets -- including Brazil, Germany, Japan and
Russia -- is affecting reported results." (This from Gillette's
(G:NYSE) warning late Thursday.) Whole groups of
companies get tarred when this happens.
But Wall Street's optimism about this earnings season may
mean the market can fight its way through the
preannouncements. There is a sense that, for the first time
in a long time, earnings are going to be good. The good vibes
over the second-quarter numbers may even be a little bit
overdone, said Stanley Nabi, chief investment officer at DLJ
Investment Management.
"It has become almost an article of faith that earnings will be
very strong," he said. "I concede that earnings will be
favorable, but there will be a number of bombs."
But until the bombs fall, it looks like stocks still have some
legs. "It looks like we've got a little more to go," said Bob
Dickey, managing director of technical analysis at Dain
Rauscher Wessels in Minneapolis. "The market's rallying
ugly once again. Things are OK, a lot of the ducks are in
line, but not all of them."
Breadth is still poor, and volume remains a problem. So
while Dickey thinks the S&P 500 and the Dow may hit new
highs, he still characterizes it as "a bounce in the trading
range. You want to hope it's more, but I don't think it is."
This jibes with Nabi's sense of the market. "I'm not bearish
intermediate or long-term," he said, "but I think we're going
to have choppy markets for several months."
On the interest-rate front, there's a body who is saying it's a
little early to say that those rate-hike fears were completely
overblown. Investors reacted to Alan Greenspan's
pronouncement that the Fed didn't go into action with a
series of moves planned as an indication that a series of
hikes wouldn't happen. But that's a failure of both logic and
common sense.
Nabi points out that it would be inappropriate for Greenspan
to say he thought a series of hikes is needed. If that were
true, why not do it all at once? "The interpretation was, this
is just a flu shot," said Nabi. "I personally think if we get
close to a 4% growth rate in the second quarter, the Fed will
have no choice but to act again."
"We also worry a little bit that people have gotten too
comfortable with the idea that it's just one," said Bill Dudley,
director of U.S. economic research at Goldman Sachs.
"The market should be a little more agnostic about what the
Fed is going to do. Clearly Greenspan ruled out aggressively
tightening, but there's a long way between aggressively
tightening and just tightening once."
Not that that seems to matter at the moment. "The
information flow on data should be friendly for the next few
weeks," said Dudley. "The most likely course is that the
Treasury market will grind a bit higher," generally ignoring
the possibility of more hikes past this month.
Hardly surprising. Again and again, Wall Street has shown
itself to be a lot more like Aesop's grasshopper than his ant. |
