10/18/00: A Wall Street Bear's Sell Off Fever Survival Guide
nightlybusiness.org
SUSIE GHARIB: Well, it was an amazing day on Wall Street. And joining me live now to talk about what's next for the markets is a top strategist. Gail Dudack is Managing Director and Chief Investment Strategist at Warburg Dillon Reed and she has been bearish on the markets. Gail, you raise your eyebrows, but, you know, you have been bearish and we're now at your targets, 10,000 on the Dow, 3,200 on the NASDAQ. So is this it? Is the worst over?
GAIL DUDACK, CHIEF INVESTMENT STRATEGIST, WARBURG DILLON READ: I wish I could say that it was over. I was expecting that the market would pretty much have discounted a lot of things I was looking for here. But, Susie, it doesn't really look that way to me. It's clear that the market could have a bounce from here, but I doubt that that bounce will be too long lasting.
GHARIB: Why are you saying that?
DUDACK: Well, the market is very oversold and you can see that people do step up and try to play a very short-term gain with this market. That's been happening again and again. Particularly you see it in the mutual fund flows. But I think that we have some liquidity factors here. Well, first we have the fundamental factors, with the earnings are slowing down, people are adjusting to that. But I'm more concerned about the liquidity factors. There's a lot of borrowed money in the stock market and to me that still remains a risk.
GHARIB: Well, one thing that a number of strategists and analysts have been concerned about is the amount of tax selling that's been going on, initially by the mutual funds, and they say the individuals will probably start the tax selling process sometime in November, and so that that could exacerbate the situation. How worrisome is that?
DUDACK: Excellent point. And keep in mind that most mutual funds have an IRS tax deadline of October 31. And to the extent that there are capital gains they want to manage those, take losses now to offset those gains so there's no tax consequence at the end of the year. That's going to continue through the end of the year and then it could be also added to by individuals through the end of the year. So at least keep your powder dry until the end of the month. And I think that might prove to be a better buying opportunity.
GHARIB: So should you sell into any rallies if there's any momentum?
DUDACK: Yeah, well, that's a tough question and, you know, to the extent that you own some very high P.E. stocks where the growth rates may, earnings growth rates may be in jeopardy, the answer to that is simple, yes. It's linked to selling off a lot of stocks or to sell out everything, but I do think there's still risk here.
GHARIB: Let's talk about some of the risks. One of the things that's come out is that the number of the tech stocks, that even though they're so cheap, that people are not going in to buy them because they just are worried that the risk is that they're not going to have the growth there going into even the new year.
DUDACK: Well, I think that, you know, what we're seeing in this quarter is that a lot of earnings growth rates are coming under question. Now, that happens many times in many different cycles, but this time the P.E.s or the valuations are much higher than normal. So that creates an added risk. And I do believe that a slower stock market is also hurting their earnings because there is no capital gains. We're seeing this even in Microsoft's earnings, that they were actually good because of capital gains. In a bad market you don't have those. So there's a lot of earnings problems there that are still out there.
GHARIB: A lot of-you've got to really read between the lines in all these earnings reports.
DUDACK: You have to be critical, yes.
GHARIB: All right, critical. You've got some new money, you want to look at areas where you can, you know, put it to work. What would you be telling your clients at this point?
DUDACK: The same thing we've been telling them all year, which is that an environment where earnings are under question, look for the most predictable earnings. Electric utilities, very easy to predict those earnings.
GHARIB: They've had a great year.
DUDACK: They've had a great year because they have great productivity gains. All that money they spent for Y2K is now showing up in their products.
GHARIB: What else?
DUDACK: Energy, particularly oil service. This whole energy problem is a supply problem, lack of supply. Oil service, good earnings for the next year.
GHARIB: Anything in tech land?
DUDACK: Tech land there's going to be spots, but I think one of the better techs in this kind of environment, biotech. Think about that. There's aging baby boomers. There's a lot of excitement going on in biotech.
GHARIB: All right, we'll take a look. Thank you very much for coming by and talking to us, Gail.
DUDACK: My pleasure.
GHARIB: My guest tonight, Gail Dudack of Warburg Dillon Reed.
10/18/00: Market Mayhem-The Tech Prospective
SUSIE GHARIB: More now on the outlook for the markets from a technical point of view. And joining me live is our colleague from BridgeNews, Michael Kahn. He is Chief Technical Analyst. Hi, Michael.
MICHAEL KAHN, CHIEF TECHNICAL ANALYST, BRIDGENEWS: Hi, Susie. Good on the back.
GHARIB: All right, you heard what Gail Dudack said, she said she doesn't think that the worst is over. What do you think from a technical point of view?
KAHN: Well, I think I'm in agreement with Gail. I've been looking at the market and the question is, is this a bear market. And I think the answer is yes. It's hard to say it's a bear market while you're in it. But if you just look at the percentages, the Dow down 12 percent, NASDAQ down 25 percent in just a few months, those are bear market numbers.
GHARIB: The Dow down 12 percent is considered a bear market?
KAHN: Well, 10 percent is a correction number and then past that, you know, you have to look at a little worse of a market. But I define a bear market as how the individual stocks are reacting to news. And as we've seen over the last few weeks, bad news is getting stocks killed. And even good news they're getting hammered. So in a bull market, bad news is tolerated. In a bear market, even good news is not tolerated.
GHARIB: All right, yes, it has been painful. Now, you've got some charts that you want to talk us through.
KAHN: Right.
GHARIB: Tell us what we should be gathering from these charts here. The Dow.
KAHN: Well, first is a multi-year chart of the Dow, and that's going back to the end of that 1994 rotational bear market, as we call it. And you can see that trend line. It's a little deceptive from the chart up here, but that trend line has been broken this month and that tells you that the trend has changed in the Dow, where it's no longer going up.
GHARIB: OK, so that's a negative. How about the NASDAQ? That's the next chart. Can you pull that up? OK, here's the NASDAQ.
KAHN: Well, the NASDAQ had much more of a rally over the last couple of months and maybe even a bubble top, as we call it. And the key thing here is that we've come down to what might be a support level. It's hard to see on this chart, but we are at a support level from last May.
GHARIB: OK, real quickly because we have very little time here, what are some of the stock sectors that have good technicals if investors want to put money in?
KAHN: Well, I agree with Gail with the biotechs. A lot of names that are holding up very well in this volatile time. And the other one is semiconductors. I think we've seen a teach washout. It might be time to start looking at some of these and one of the names would be Intel (INTC).
GHARIB: OK, so there is a little bit of a silver lining in this market.
KAHN: There sure it.
GHARIB: Thank you so much, Michael. And we've been speaking with Michael Kahn of BridgeNews.
Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by FDCH. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc., Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. © 2000 Community Television Foundation of South Florida, Inc.
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Wow, biotech (at least the large cap ones) are a "safe" haven for investors during a bear market. Who'd thunk it!
Jim |
