It is all boiling down to consumption going forward and improved GDP numbers. I am hopeful that we are traveling across the worst and lows as share prices have been discounting the obvious contraction in earnings for the past nine months. As we work though these productivity and demand problems caused by the slow down in the economy I think the inventories built up in '00 will reach a point where moderate to slow growth will go forward though the remainder of this year. I assume it will take another 6 month for signs to appear in the economy that GDP is resuming it's upswing in a more consistent and moderate level of growth. I am confident the rate cuts and tax cuts will stimulate the economy for a nice run over the next few years making the current lows attractive in many sectors....Lot's of capital will be invested in the energy sector to improve the infrastructure and this will probably drive the GDP for years to come. Government spending is likely to remain constant increasing 4-5%
No, doubt the market is likely to go sideways here a few more months until businesses begin to report real improved earnings....I feel we are in better shape than we were 3-6 months ago....just a matter of time. I'm sure there will be many false starts to a sustained market recovery as investors try to anticipate the coming 6-12mos. JMO
This was posted on another thread...I thought it was informative
Markets take a hit, more blows coming
By Jeffry Bartash, CBS.MarketWatch.com
Last Update: 5:43 AM ET June 16, 2001
NEW YORK (CBS.MW) -- If the market were a boxer, he'd be on one knee right now.
During the past week, investors were staggered by a series of painful body blows -- multiple corporate warnings, weak economic data, minuscule demand for stocks. Though the market caught its breath on Friday, it's still a little woozy.
For the week, the DJIA retreated 3.2 percent, while the Nasdaq surrendered 8.4 percent of its total value.
Things don't look like they are going to get much better next week, either. With just two weeks to go before the end of the second quarter, more companies are expected to issue earnings warnings.
This week alone, Maytag (MYG: news, msgs, alerts) , Heinz (HNZ: news, msgs, alerts) , Nokia (NOK: news, msgs, alerts) , McDonald's (MCD: news, msgs, alerts) , JDS Uniphase (JDSU: news, msgs, alerts) and Nortel Networks (NT: news, msgs, alerts) all announced sales or earnings shortfalls.
Compounding matters, Wall Street was flooded with more than $15 billion in new equity this week, even as investors withdrew billions from the stock market.
Research firm Trim Tabs said that $4.9 billion was withdrawn from equity funds in the week ended June 13, compared with an inflow of $10.9 billion the prior week. And equity funds that invest primarily in U.S. stocks had an outflow of $2.5 billion, compared with an inflow of $7.2 billion the week before.
On top of corporate warnings and investor withdrawals, government data on the U.S. economy showed that widespread weakness persisted, and in some areas, worsened.
Feeling the most intense heat these days is the high-tech sector, the main engine of economic growth in the late 1990s boom years. The communications-equipment industry, in particular, is suffering from tremendous overcapacity, as witness by sharp decreases in sales at JDS, Nortel and others.
"The Optical Dead Zone gets deeper and wider by the day. If JDS' forecasts are accurate, its business will have been cut in half within two quarters!" Merrill Lynch analyst Tom Astler told clients Friday. "This is a company that over the last few years has seldom seen its growth rate dip below 80 percent. Times have changed."
Federal data clearly support that view. Capacity utilization in high-technology industries, which includes computers, communications equipment and semiconductors, sank to 70.3 percent in May, the 10th straight monthly decline and lowest industry level in 25 years. See full story.
Indeed, industry observers and executives say the equipment sector might not start to generate solid growth again until 2003.
"Inventories have dipped a bit, but sales are falling so fast that production has to be cut," said Song Won Sohn, chief economist at Wells Fargo. "Unless there are new technological innovations, it takes months and even years to whittle down excess capacity."
If that's the case, an economic turnaround may still be a long way off. Though the Federal Reserve has slashed interest rates this year, it may not be enough to prevent the economy from slipping further. Historically, Fed rate cuts take up to a year or more to work their way through the economy, and with structural weakness plaguing sectors such as communications, business activity may be slow to rebound. That would mean stagnant corporate profits - and sluggish stock prices.
"The market could be trading sideways to lower for a while," said Stephen Carl, head of equity trading at The Williams Capital Group. "Look to the Fed for a rate cut in June, but we have to see some strong economic data and earnings before the market recovers."
Next week is relatively light for economic data. Still, investors will pay attention to housing starts for May, which will be released Tuesday. Housing has remained one of the strongest sectors of the economy. Signs of weakening there would not be a good omen.
In addition, the government will report U.S. trade data for April. View Economic Preview and economic calendar and forecasts.
Friday's action
Stocks on Friday briefly reversed an early plunge, but the market drifted back into the red by day end, battered by a pile of corporate warnings and a report showing further weakness in the manufacturing sector.
Amid a drumbeat of bad news, market action got a boost from "triple witching" -- a quarterly event that involves the simultaneous expiration of futures, options on individual stocks and options on stock indexes. That triggered an avalanche of early orders and likely limited the market's decline.
"All of the volume is because of triple witching," noted Stephen Carl, head of equity trading at Williams Capital Group. Aside from that, "the market's mostly been directionless," he said.
Nonetheless, a negative tone was set Thursday evening, when JDS Uniphase cut its quarterly sales estimate 14 percent. The manufacturer cited an "unprecedented" downturn in the market for fiber-optic equipment. See full story.
Then on early Friday, phone-equipment bellwether Nortel Networks and fast-food giant McDonald's piled on with warnings of their own. In addition, unfounded speculation that Microsoft would issue a warning also roiled the market.
Making it worse, the Federal Reserve reported that U.S. industrial production fell for the eighth straight month in May, as the capacity utilization rate of factories fell to its lowest pace in almost 18 years.
The flurry of bad news knocked more than 100 points off the Dow Jones Industrial Average ($INDU: news, msgs, alerts) early on. The index fought back for a gain by midday, but later backpedaled 66.49, or 0.6 percent, to 10623.64.
About one-third of the Dow components scored positive gains. Honeywell International (HON: news, msgs, alerts) posted the highest score, up 4.6 percent. J.P. Morgan Chase (JPM: news, msgs, alerts) added 3.0 percent. And Johnson & Johnson (JNJ: news, msgs, alerts) climbed 2.2 percent.
On the downside, McDonald's (MCD: news, msgs, alerts) , Procter & Gamble (PG: news, msgs, alerts) and SBC Communications (SBC: news, msgs, alerts) topped the list of decliners. Losses ranged from 3.4 percent to 4.3 percent.
The Nasdaq Composite ($COMPQ: news, msgs, alerts) , meanwhile, extended its losing streak to six straight sessions and briefly fell below 2,000. It slid 15.65 points, or 0.8 percent, to 2028.42. The Nasdaq 100 Index ($NDX: news, msgs, alerts) shed 9.88, or 0.6 percent, at 1701.51.
The Standard & Poor's 500 Index ($SPX: news, msgs, alerts) decreased 0.5 percent while the Russell 2000 Index ($RUT: news, msgs, alerts) of small-capitalization stocks drifted 0.1 percent lower.
Volume on the DJIA registered a relatively heavy 1.77 billion shares, though action tapered off following an early burst of action. Advancers slightly outnumbered decliners, 1,571 to 1,455.
On the Nasdaq, volume surpassed 2 billion shares. Decliners outpaced gainers 13 to 8.
Fair warning
Once again, the high-tech sector fizzled amid several fresh second-quarter warnings, including those by JDS Uniphase (JDSU: news, msgs, alerts) and Nortel (NT: news, msgs, alerts) . JDS fell 10 percent, with Nortel down 7 percent.
Nortel, in announcing a $19 billion second-quarter loss, said it will stop paying dividends on its common stock and will lay off another 10,000 workers. That's on top of a reduction of 20,000 announced in April. See full story.
Jeffry Bartash is a reporter for CBS.MarketWatch.com in Washington. |
