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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Jerry Olson who wrote (100463)	6/3/2000 12:24:00 PM
From: bobby is sleepless in seattle	Read Replies (2) \| Respond to of 120523

Maybe this upcoming dip will see volume buying as many of the traders, both retailers and institutions, were waiting for this technical bottom to form and now anticipate a higher low. Whether we have or not, looking good as the lemming (not insinuating that you are, more a leader of!) mentality says we rally for now. Bull or bear market, let's play while the bear's napping away! Listening to several viewpoints, it appears Greenspan may have overdone the rate hikes, thus the penalties for the fed's actions are to be borne in due time by our economy. The market will discount, and hopefully provide us with opportunity on the long side for the short run (no oxymoron intended!)...to counter the exuberance, we'll begin to hear (noise) more on the fuss genrated by the feds as economic slowdown places pressure on earnings! Here's a summary of recent events.... Market Analysis (from MBT) The stock market came back with a roar this week after the Nasdaq reached a low of 3,042 on Wednesday May 24th. Retail sentiment changed to the positive side with institutional participation providing a sizable catalyst to the move up this week. There was little to be unhappy about to the long side. Economic reports came in showing signs of economic slowdown and a possibility that there may be inaction by the Fed at the end of the month. At the very least, expectations for a 25 basis point hike may be ahead. As I noted in the report last week, when traders feel that we are within one Fed move of inaction, markets tend to become more positive for the short term. Throw in a little boost from market gurus like Bob Brinker and we had the makings of a fabulous rally. The Dow ended the week higher by 495.52 points (+4.81%) to end at 10,794.76. Dow Transports also gained on the week adding 141.81 points (+5.28%) to end at 2,829.36. Dow Utilities, after being one of the best performers over the past two months, has pulled back losing 4.37 points (-1.33%) to end at 323.09. The Nasdaq gained 608.27 points (+18.98%) to end at 3,813.38 on better than average volume than we've seen in recent weeks. The S&P 500, which had held up relatively well in percentage terms versus the Nasdaq, gained 99.24 points (+7.20%) to end at 1,477.26. This index is now only 4.88% off late March highs. The Wilshire 5000 Total Market Index gained 1,117.33 points (8.86%) this week illustrating the point of a great broad rally. The index ended the week at 13,734.37 and is now 8.39% off late March highs. The Russell 2000 small cap index gained 55.66 points (+12.17%) to end at 513.03 showing partly due to the Tech rebound in this index. The 30 Year Yield backed down again to under 6% finishing the week at 5.935%. The 10 Year Note trended lower as well moving from 6.320% last week to 6.148% this week. Over the past year, we were seeing signs of strong economic growth and accelerating inflation that was putting pressure on the equities markets. Rising interest rates were squeezing money supply and there seemed to be no end to policy of Fed tightening as long as this was to continue. Traders were waiting for signs of a reversal and that the end of the tightenings is near. They certainly found it this week. Reports such as the Retail Sales, Auto Sales and finally the Employment Data all gave traders a sigh of relief that the economy is finally slowing enough that we may only be one rate hike away from Fed inaction relative to monetary policy. As we said last week, historically traders get optimistic when they feel this scenario is near. The Employment Data seemed to be the icing on the cake on Friday. Average hourly earnings rose just .1% and is now 3.5% year over year versus 3.8%. Payroll employment figures fell 126,000 marking the biggest decline since 1991. The Household Measure of Employment fell 991,000 showing the biggest decline ever. Unemployment finally rose back to 4.1% after being under 4% in the last report. The labor pool fell 3% and workers that voluntarily leave their positions fell to 13.2%. Hours worked fell .6% and in the manufacturing sector, hours worked fell 1.9%. With hours worked falling and hourly earnings decelerating, this could suggest a decline in Personal Income for May. Furthermore, with hours worked lessening in manufacturing, Production Figures could have declined in May. This should affect GDP figures to the downside. Hopefully you can see where I'm going with this. Slowdown. Further signs of slowdown are evident in Home Sales. Long term rates nearing the 9% level have slowed new home sales. Auto sales were slowing but did pick up this again due to incentives. While the sector picked up this week, it wasn't at levels that we saw previously. With traders buying into consumer staples and getting back into Financials, sentiment seems to be that the slowdown is here. Interestingly enough, consumer confidence continues to be strong with a reading over 50 again this week. Many feel this is in proportion to the drop in unemployment and the perception that job opportunities are still abundant. However, when looking at the trend of productivity, we have seen the decrease of available labor. If GDP slows and the necessity to use available resources for productivity (meaning labor) becomes less, then unemployment could begin to continue higher as firms will not need to produce as much to meet demand in orders for products. Many see this as recessionary. If we see a collapse of new orders, rising unemployment and slowing industrial production, then this could show remnants of a coming recession. We'll have to see just how much of the Fed monetary policy produces this scenario. Overall, we have the Prime Rate at 9.5%, oil prices near $30 a barrel, tighter bank lendings and a weak stock market. This is seen as the first self fulfilling economic slowdown since 1990. In recent months, investors were a bit timid in their investment strategy as they began to question valuations relative to the economic and inflationary outlook. They were less willing to pay premiums for stocks that they felt may not sustain their fast growth rates in the face of Fed monetary policy with a tighter bias. The recent stock market correction has certainly brought stocks off those high valuations and to levels that investors feel more comfortable with regarding the perception that the Fed is close to done. One important part of the puzzle is still the aspect of inflation. Economic slowdown is great but not if we are facing a continued acceleration in inflation. While the Potential GDP is closer to 3.5%, we are still seeing Real GDP over the 5% level. This could still be cause for inflationary pressures. This would suggest that while the slowdown is evident, we may still see another 25 basis points in June to curb any sense of inflationary acceleration. We will see the PPI number on Friday and then on June 7th, we receive our CPI number. The Fed started its tightenings 12 months ago and we are now seeing the implications of this policy in economic data. We would expect to see this show up in the inflationary reports as well. Further Fed tightenings in the face of a slowdown could disrupt the global economy. Emerging markets are feeling the pressures a bit already. Ideally, we would like to see the economic slowdown to sustainable rates that prompts Fed inaction. Inflationary fears would have to be tamed as well to provide us with enough evidence that rate hikes are no longer needed and the Fed could adopt a wait and see attitude instead of its aggressive stance it has now. Should we get little inflationary pressure and further economic slowdown, the equities markets could continue to produce a nice summer rally for investors and traders alike.