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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (41462)	2/26/2000 11:14:00 AM
From: Les H	Respond to of 99985

ANALYSTS: US BRICK-AND-MORTAR SHARES TO REBOUND WHEN INTEREST RATES PEAK By Mark Pender NEW YORK (MktNews) - The premise that technology-related demand will be immune to moderately aggressive U.S. monetary policy has triggered a memorable shift in the stock market away from traditional industry, leaving a vacuum that will be eased only by an end to the current interest rate cycle. Friday's sharp upward revision to fourth-quarter domestic product at 6.9%, combined with Federal Reserve Chairman Alan Greenspan's statement on Wednesday that recent high growth rates were unsustainable, have hardened expectations for the coming rate series and led this week to even more pronounced divergence between technology and non-technology shares. Since mid-January, dealers and analysts have reported aggressive rotation out of brick-and-mortar, so acute that many consider broader shares to be in a bear market -- the formal 20% threshold aside. The major averages are down about 15% from their January highs, many companies are 50% off their highs, financial stocks are making 52-week lows, and corporate buy-back announcements are flooding the newswires. The beneficiary has been technology. "The expectation for the Nasdaq is that these are not interest sensitive stocks, and basically who cares if it's a quarter percent or a half percent when the returns are so great. A marginal increase in interest rates is really not going to slow down a tremendous global expansion in technology," said Barry Hyman, senior market strategist at Ehrenkrantz, King and Nussbaum. Michael Farr, portfolio manager at Farr Miller & Washington, believes rate hikes will not harm sound technology companies, which he defines as those with solid earnings. "You will still have a great deal of enthusiasm in the technology sector ... semiconductor speeds will still double every 18 months, bandwidth will still quadruple every 18 months." Though many fear the divergence may be a symptom of an unhealthy condition and a sign of trouble ahead, Hyman says that such divergence is not unprecedented. He compares the status of the oil industry in the 70s to the tech sector of today. "Twenty years ago you had oil and oil service stocks do well while the rest of the market did little .... These situations do arise and it doesn't necessarily have to lead to a significant catastrophe." But all agree that the swing has left an unusually heavy imbalance in the market, which many say should soon attract investment. "When you mix perceived valuation with an oversold market you usually get a rally, and I think we're fast approaching this on the blue chip averages .... I can't say it's immediate, but it's coming up in the near term," said Hyman. The likely trigger for a rally will be that moment when expectations end for further rate increases, Hyman said, adding that this is expected at the May or June FOMC meeting. Current conviction is the Fed, sensibly wanting to avoid any appearance of politics, will get its business done well before the presidential election heats up. "It takes a catalyst to snap out of a bear market. And that catalyst is certainly going to be the end of the interest rate hikes and a slower economy," Hyman said. But when this happens, Hyman says don't plan on the recovery to mark an end of some kind for technologies. "Don't expect the Nasdaq, because the Dow and the S&P are going to rally, to start going down." Even if the worst is over for non-technology shares, analysts are quite confident that Fed policy will not disrupt the global information retooling, nor share prices in related companies. Says Hyman, "We're not talking about the U.S. economy being thrust into a significant downturn here, we're talking about growth slowing down to maybe three-and-a-half to four percent. That's still a good number traditionally to achieve a good growth rate in technology stocks. And since this is a sector that is in an early stage, I say they continue."