RR: Just as I leave town for a few days the traders find ANY reason at all to SELL, SELL, and SELL some more <VBG> --> they are as nervous as they come now. Oh well, I should've gone to cash about a week ago. Ya win some....ya lose some....=)
Check out this update on the market conditions...
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What a Week: Warnings, Troubling Jobs Data a Poisonous Cocktail
By Aaron L. Task
Senior Writer
TheStreet.com
7/6/01 6:39 PM ET
<<SAN FRANCISCO -- With the Independence Day holiday falling on Wednesday, this week was destined to be a little wacky and weird -- and it was. But wobbly and worrisome also aptly describe the week, which struck a serious blow to hopes for a summer rally.
Including Friday's substantial losses, the Dow Jones Industrial Average lost 2.4% for the week, the S&P 500 declined 2.8%, and the Nasdaq Composite shed 7.2%.
Stocks tumbled Friday after profit warnings from Advanced Micro Devices (AMD:NYSE) , EMC (EMC:NYSE) and BMC Software (BMCS:Nasdaq) once again questioned the second-half rebound thesis.
Additionally, the unemployment rate rose to 4.5% in June after nonfarm payrolls declined by 114,000. The unemployment rate had been expected to rise to 4.6%, but the number of jobs lost was more than double what was expected.
Economic data earlier in the week, including personal spending and consumption figures, as well as the National Association of Purchasing Management's separate surveys of manufacturing and service industries, had indicated hints of recovery. But Friday's jobs data, in conjunction with the profit warnings, reminded investors of the still-challenging economic environment.
In reaction, the Dow fell 2.2%, the S&P 500 lost 2.4%, and the Comp shed 3.7%. Treasury bonds rallied Friday on renewed hopes for additional Federal Reserve rate cuts. But recent strength in the dollar evaporated as dollar bulls, like equity optimists, fretted the economic rebound may be further off than previously anticipated.
"NAPM, new home sales and consumer confidence are leading indicators that signal a bottoming out may be just around the corner," said Alan Skrainka, chief market strategist at Edward Jones in St. Louis. "But those signs are still very tentative. Companies are responding to the economic slowdown by cutting jobs, and the risk is those layoffs lead to a slowdown in consumer spending, which leads to more layoffs."
Skrainka said the worrisome aspect of the June employment report was not so much that manufacturing jobs were lost for the 11th consecutive month because that was not a surprise; more troubling was that the service sector failed to add new jobs in the second quarter for the first time in four decades, he said. "That tells us weakness so concentrated in manufacturing is now spreading."
The strategist expects the economy to bottom in the fourth quarter and declared himself to be "long-term bullish" on the market. But right now, "the fundamentals are just not very good," he said. "Caution is in order," particularly in technology and telecommunications stocks because there's "way too much supply in all key areas relative to demand."
Reflecting that vexing trend were the warnings from AMD, EMC and BMC Software, which capped another week chock full of tech shortfalls.
There were nearly 90 profit warnings this week, according to Briefing.com. Those from nontech companies such as 3M (MMM:NYSE) , DuPont (DD:NYSE) , Federated (FD:NYSE) , Harrah's (HET:NYSE) and Payless Shoe (PSS:NYSE) stood out because they were relatively rare compared with the avalanche of tech warnings.
In a report Friday, Goldman Sachs' global economic research department estimated U.S. technology spending will be down 24% on an annualized basis in the second quarter after a 19% decline in the first quarter.
The good news is Goldman expects tech spending to return to positive growth on a quarterly basis in early 2002 and on an annual basis in the middle of next year.
The bad news is "despite the impending turn, investors looking for a powerful rebound are likely to be disappointed," the report continued. "The growth pace will likely remain sluggish for an extended period of time" because technology capital spending as a percentage of gross domestic product is "significantly above its long-term trend. [Also], tech investment typically lags rather than leads economic recoveries, and a deeper downturn historically does not imply a more forceful recovery."
Over at Edward Jones, Skrainka currently recommends an asset allocation of 70% stocks, 25% bonds and 5% cash. Within equities, he recommends underweight positions in tech/telecom and overweight in health care stocks such as Pfizer (PFE:NYSE) and Schering-Plough (SGP:NYSE) , although big pharmaceuticals have struggled of late.
He also likes financial services stocks Citigroup (C:NYSE) and Fannie Mae (FNM:NYSE) , as well as REITs Kimco Realty (KIM:NYSE) and Duke Realty (DRE:NYSE) .
Edward Jones has done underwriting for Kimco and Duke.
Get Me Outta Here
About the only positive spin one could put on this week's action is that the holiday atmosphere permeated throughout the week. Many participants were absent, and it could be argued that the diminution of trading volume exaggerated the downward trend.
Friday, for example, was one of the slowest trading days of the year in over-the-counter activity, with about 1.4 billion shares traded. Still, New York Stock Exchange volume of 1.1 billion was in line with the daily averages for the past three months.
Regardless, traders took little solace in the slowdown, noting losses are losses, regardless of the accompanying volume.
"People are away and it's dead -- that's for sure," said Sam Ginzburg, senior managing director of equity trading at Gruntal. "But I don't think people realize how bad things look right now. A lot of people are getting hurt out there."
Many investors are getting hurt because they believed the multiple "second-half recovery" stories and refused to sell, Ginzburg said. They also didn't believe a $7 stock could be "cut in half," as was the case this week with Marconi (MONI:Nasdaq ADR) , after the U.K. telecommunications equipment maker warned.
"I think more pain is to be had on the downside," the trader said. "Selling will only lead to more selling, so I'll sell into any lift, especially Monday morning."
Maybe the only good thing to be said about this week is that it is over.>>
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I'm enjoying my time up in Holland, MI with lots of friends and relatives. We had a great Italian picnic last night -- boy was it fun. I've also been spending some time sailing, playing tennis, giving people rides on the speed boat, borrowing a friend's new WaveRunner, reading and thinking about 'my plan'...I may be doing a little course-correcting soon...=)
Hope you and your family enjoy the rest of the weekend.
Best Regards,
Scott |
