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

To: Les H who wrote (46312)	4/14/2000 5:45:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

ANALYSTS SEE US STOCK PLUNGE AS HEALTHY, SOBERING CORRECTION By Mark Pender NEW YORK (MktNews) - Analysts and dealers greeted the sharp fall in the U.S. stock market this week as a positive, saying it is purging speculative excesses and may pave the way for sober, less volatile gains ahead. Many participants said new signs of inflation may mark a watershed for the market -- an emergence of inflation, an acceptance of tightening Federal Reserve policy, and lower expectations for market returns. "This could be the wash-out that everyone's been hoping for. It's bad news in the short run but possibly good news in the long run," said Jay Suskind, director of trading at Ryan Beck & Co. Voicing a common hope, Suskind said the declines may provide the "fear factor" the market needs for a balanced performance in the coming months. The size of recent losses may provide that fear, as the Nasdaq dropped 356 points, or 9.7%, on Friday, while the Dow Industrials lost 616 points, or 5.6%. Despite the decline and reflecting the magnitude of momentum, the Nasdaq 's still up 46.6% from a year ago. Larry Rice, chief strategist at Josephthal & Co., called the losses "long overdue" and said they are "healthy" for the market's long-term prospects. "Brokers were holding clients' hands today. This is painful to go through but it's what the market needs to reduce speculation." Dealers and analysts have consistently attributed huge swings in the technology sector to the negative influence of momentum players. They say the extraordinary profit and revenue gains among many Internet infrastructure and communication companies over the past year, many approaching 30%, have bloated the expectations of day traders. March's CPI may prove to be the fundamental key that signals a retreat in the performance of technologies and a decline in the influence of momentum players. The CPI rose 0.7% in March with the core rate up an alarming 0.4%. Diane Swonk, chief economist at Bank One Corp and president of the National Association for Business Economics (NABE), described the report as the "first real smoking gun" that global demand is finally outmatching competition -- enabling producers to make price increases stick. "Firms have seen a significant shift in their ability to increase prices over the last three months," Swonk said, referring to the results of a NABE report issued earlier this week. These warnings echo those earlier this month from the National Association of Purchasing Management, which said that price increases are beginning to reflect demand pressures, not just a temporary spike in energy prices. "The inflationary phase of this cycle has begun," Swonk warned, emphasizing that those who had hoped the current rate cycle was near a peak "will be disappointed." Despite the market's big losses and a new fear over interest rates, many remain skeptical that volatility in the market has completely played out. "Until we see the Ciscos and the Dells being hit, instead of the dot-coms, I suspect that the volatility will prove to be just a trading bounce," warns Rice, referring to the relative strength of established technology stocks. Rice expects the Nasdaq to bounce back 10% to 15% before sliding below current levels. "Hopefully by then people will realize we're not going to get just two more quarter-point rate hikes, that inflation is out there." Where should investors go during this denouement? Ryan Beck's Suskind believes old-line industrial shares may suffer less than technologies. "Their P/E's make them less vulnerable," he said, referring to their more modest valuations which are about half that of technologies. Among the old-line group, dealers and analysts will be paying special attention to financials which had until Friday enjoyed relative strength and provided a convenient parking place for momentum players going in and out of Nasdaq shares. The CPI report bludgeoned many of these stocks, raising at least temporary doubts about their prospects. Dealers and analysts say expectations for annual returns should be scaled back to historical ranges, roughly 10%. Rice believes this year, due to the volatility from momentum players, may prove to be below average, predicting a flat to 5% return for the major averages. Swonk believes that higher interest rates will make a substantial dent into profits, ending the days of the "outsized" returns "we've grown accustomed to". She says returns in the 8% range for this year may be "much more reasonable".