Voltaire's hometown newspaper claims Bears are becoming Bulls <VBG>....
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Copyright 2001 The Atlanta Constitution
The Atlanta Journal and Constitution
March 10, 2001 Saturday, Home Edition
SECTION: Business; Pg. 1F
LENGTH: 1276 words
HEADLINE: BEARS BECOMING BULLS: Analysts signal worst may be over;
Cautious advice: Buy stock
BYLINE: Tom Walker
SOURCE: AJC
BODY:
<<It's time for greed again. Fear has driven the stock market long enough.
That's the sentiment of an increasing number of Wall Street strategists and money managers one year after technology stocks peaked, then plunged into one of the worst crashes in stock market history. The tech sector's fall took the rest of the market with it.
Even today, the technology-loaded Nasdaq composite index is 59 percent below its record close of 5,048.62 on this date last year.
But as though on cue, respected strategists are coming out with the same message: The worst of the slide is over.
Nobody is predicting just when the market will hit bottom and turn up again, but they're saying it's time to start thinking of buying again.
Steve Leuthold, president of Leuthold/Weeden Capital Management in Minneapolis, declares that the bear market "is about over."
That's no small matter, since Leuthold is one of Wall Street's most respected bears.
"I have no vested interest in being bullish," Leuthold explained in his latest market analysis. "Over the years, our investment management accounts tend to do best in difficult markets. That said, I think now is the time to build equity commitments."
Joining the bear who turned bullish this week was Wall Street's best known bull --- Abby Joseph Cohen, chief strategist for Goldman, Sachs --- who recommended investors pump up their stock holdings by 5 percentage points.
In effect, that message rescinded her March 28, 2000, recommendation that investors get rid of the same percentage of their stock holdings. Some analysts blame that recommendation for contributing to the sell-off in technology stocks that was by then under way.
Leuthold said that he, too, "might boost" his portfolio stock weighting by 5 percentage points this month.
These opinions are in stark contrast to much of the market's recent day-to-day trading. All the major indexes fell Friday on a disappointing sales forecast from Intel, the bellwether microchip maker, as well as surprisingly strong economic news from the government.
The Nasdaq fell almost 5.4 percent to 2,052.78 for a two-day drop of almost 8 percent. Even the recently stable Dow Jones industrial average, beneficiary of the Nasdaq's losses, ended a five-day winning streak to fall 2 percent to 10,644.62.
News that the unemployment rate was unchanged at 4.2 percent in February appeared to cast doubt on how aggressive the Federal Reserve might be in cutting interest rates again to stimulate the economy.
But Leuthold said the two rate cuts made in January are important to his bullish case for the market, along with the big recent increase in the money supply, the prospect of a federal tax cut and his view --- supported by the job news --- that the economy is about halfway through its weakness.
Leuthold and Cohen also agree last year's unusually high stock valuations have come down during the sell-off to acceptable, if not ideal, levels.
In Leuthold's view, the big negative for a market bottom is the persistent bullishness among many investors.
"Historically, bear markets have not ended until the public gives up and dumps stocks," he said. "While I was amazed this did not happen during last year's Nasdaq plunge, it may be about to occur."
In a weird turn of events, some market gurus have even begun to argue investors ought not be in such a hurry to see share prices rebound.
"For somebody who is putting money in the market month by month, now you're picking up shares at cheaper prices," said Jeremy Siegel, author and finance professor at the University of Pennsylvania's Wharton School. "This is good news for long-term investors. The longer it goes on, the better off you are."
As Cohen explained it, market risk is lower now than a year ago with stocks at their peaks.
That may be true, but it probably will not resonate well with investors who collectively lost more than $3.76 trillion in market value over the past year. That created a reverse wealth effect that contributed to the economy's weakness.
In that regard, some well-respected analysts disagree strongly with Leuthold and Cohen that the market may be close to the bottom, or that the economy is almost halfway through its travail.
David A. Levy, director of the Levy Institute Forecasting Center in Mount Kisco, N.Y., said manufacturing weakness, sharply falling consumer confidence, cutbacks in capital investment and sharply curtailed bank credit all point to "a recession that will prove unusually severe and long."
Corporate profits have already fallen substantially, and this will continue to put a damper on stock market investing, said Levy. And with consumer and business debt at historic levels, the economy is vulnerable to any setback.
Probably the biggest dispute between bearish and bullish strategists is whether share values really have dropped to acceptable levels --- especially when it comes to technology stocks.
The price-to-earnings ratio of Standard & Poor's 500-stock index has fallen from 36 at its highest on April 12, 2000, to 25.2 on Friday. The P/E for the Dow Jones industrial average has fallen to 21.3 from a high of 28 on Sept. 3, 1999.
P/E is a measure of share-price value relative to earnings per share. Historically it has been about 16, analysts say.
The Nasdaq composite index, which measures most technology stocks, still trades at almost 164 times earnings, down from a high of 400.5 times on March 10, 2000 --- the day the index peaked at 5,048.62.
If the S&P-500 and Dow P/Es are no longer excessive, analysts say the Nasdaq's is, which means the tech sector still has further to fall.
This is a debate that will only be settled by time and events. Meanwhile, investors and strategists are assessing the damage as they prepare to move on in an uncertain market.
By all accounts, the latest bear market occurred after euphoric investors, mesmerized by the lure of the Internet and other new technology, pumped the market up into an old-fashioned bubble that, like all bubbles, eventually burst.
Unlike most bear markets, the worst damage was concentrated in the tech sector, although it was bad enough that "old economy" stocks were depressed as well.
Dow and S&P-500 stocks got some support from the money that rotated out of technology and into sectors investors perceived as safe havens. But even the S&P-500 fell about 20 percent at one point, a decidedly bearish decline.
If the sell-off did nothing else, it debunked a number of myths and sidetracked practices that shaped investor thinking this time last year.
The so-called "new economy" myth was dispatched utterly, as investors learned to their chagrin that Internet companies are affected by traditional finance.
Investors also learned that good advice is relative to the situation. "Buy on the dips" may make sense in a bull market, but in a falling market investors are likely to buy shares that go on dipping.
"Momentum investing" --- buying stocks simply because they were rising in price --- is a dead issue, for now. According to strategist Cohen, momentum was the single most important factor behind share-price movement from late 1999 through the peak in 2000.
Since last April, return on equity, relative valuation and a "return to fundamental analysis" have been restored as barometers or practices to use.
Investor psychology is also more important than it was last year, although it is more bearish. And just as investors over-react on the upside, they are likely to over-react on the downside.
But as Leuthold and Cohen might put it, that would simply create more buying opportunities.>> |
