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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (39201)	8/24/2002 4:37:38 PM
From: LTK007	Read Replies (1) \| Respond to of 52237

<<Bull Market Part II Is Not in the Can Yet Sat Aug 24(2000,2001,2002,2003,2004 ,whatever, that headline is such a yawn, Godfrey Daniels!) 2:59 PM ET By Pierre Belec NEW YORK (Reuters) - Investors love bull market sequels, but Wall Street is not signing up, at least not yet. Feeding fresh fears about the stock market are gloomy economic numbers. The growth rate slowed in the second quarter after powering ahead in the first three months of the year. And early signs show the third quarter isn't looking up. Industrial production in July would have posted its first decline this year without the support from Detroit's zero interest rates, which spurred heavy output of cars and trucks. Consumer confidence was down in early August. More troubling is that people's outlook for the next six months deteriorated, according to the University of Michigan. What's happening, Northern Trust Co. says, is the loss of $7.8 trillion in household wealth since stocks crashed in early 2000 is finally starting to have an impact. The other thing that may eat away at the economy -- if sustained -- is a rise in the saving rate as consumers try to rebuild their net worth. History shows that when consumers shift from buying stuff and start to save, this long and drawn-out process of putting cash away for a rainy day can put a damper on the economy. Faced with an uncertain labor market, millions of debt-burdened consumers are at a stage where they're squeezing water out of a stone and are focusing on paying off their bills. This is another negative for the economy because it means people are not spending. "Frugality and debt reduction will translate into a weaker consumer spending trend," Northern Trust says. Indeed, the mood of consumer confidence has now turned dramatically after climbing by a shocking 16 percent in a March sampling by the Conference Board ( news - web sites). A drop in confidence has often been a prelude to a decline in real spending by consumers who generate two-thirds of economic growth. MORE SIGNS OF TROUBLE Construction of new homes fell in July for the second straight month. The Conference Board's Index of Leading Economic Indicators ( news - web sites) -- a key gauge -- sank in July at the fastest pace since the September attacks on the United States after slipping in June. Indeed, there's no room for more disappointment. Another batch of bad economic news could put the whole stock market under renewed pressure. The lowest interest rates in 40 years have helped keep the economy from dipping back into recession during the past year by fueling heavy buying of cars and sparking a boom in the real estate market. A rush by consumers to refinance mortgages has put billions of dollars into their pockets. The Mortgage Bankers Association's index of mortgage applications is at a new high with a massive 70 percent of the loans going to refinancing. Mortgage rates hover at a new historical low of about 6 percent. REAL ESTATE VERSUS STOCK MARKET The forces of supply and demand have sent home prices through the roof. The National Association of Realtors says home prices rocketed 12 percent to 30 percent in the red-hot markets in New York, Boston and parts of California during the 12 months ended in June. This has made home owners feel "rich," at least on paper, soothing some of the pain from their shriveled stock portfolios. Americans have been redirecting their household wealth toward their primary residences since stocks crashed. But there are risks out there. A sustained drop in consumer confidence or a more severe shake-out in stocks could ratchet down expectations about the economy. The concern is the housing bubble may not inflate forever. Historically, the real estate market has peaked and deflated two to three years after the boom in stocks has ended. Wall Street has so far been in the jaws of a bear market for more than 2-1/2 years. Real estate is already showing signs of leveling off. Nationwide, the median price of homes rose at a slower pace of 7.4 percent in the second quarter after climbing 8.1 percent in the first quarter. Sales of existing homes tumbled by nearly 12 percent in June, the biggest monthly drop since April 1995. Sales were down 4.4 percent in the second quarter after surging 10.4 percent in the first quarter. The odds are the jobless rate will increase in coming months as companies lose faith in the economic recovery. As worried consumers pull back on spending, businesses will postpone new expansion, triggering more rounds of layoffs. Government numbers for July showed payroll growth came to a halt. Companies will likely continue to cut costs through the end of the year to boost earnings. The stock market has taken a jack hammer to their shares and many profitless firms can't raise the price of their goods in this shaky environment. Worth remembering is that job cutting is the most direct way for companies to achieve instant savings. Federal Reserve ( news - web sites) Chairman Alan Greenspan ( news - web sites) at the policy-setting meeting this month passed on the chance to lower interest rates further, but he left the door open for a possible easing later this year. Just eight months ago, the discussion was about the date of the central bank's first rate increase. Bond market traders are more convinced than ever the central bank will lower, possibly by September, because the shots of adrenaline from last year's massive 11 cuts are fading. ODDS OF FED EASING MAY STEADY STOCKS Perhaps the one thing that will keep stocks from tumbling again will be the prospect of more Fed easing. In other words, the prospect of cheaper money may give stocks a floor, offsetting lousy corporate earnings and other market shocks. Some critics say the risk is that Greenspan may react too timidly to offset the downside forces in the economy. The reality is that the central banker can't afford to be shy with the lubricant that will get the economy back on the road again. The big question is whether the market has already discounted the possibility of a double-dip recession. For that reason, Wall Street is still a dangerous place for unsavvy investors. During the boom years in the 1990s, stocks soared for all of the wrong reasons on expectations that corporate earnings would constantly keep rising. More than 2-1/2 years later, many companies are still struggling. Investors may now think that interest-rate cuts by the Fed will be a substitute -- as a market stimulus -- for Corporate America's earnings, which are no longer on a steady march upward. For the week, the Dow Jones industrial average rose 1.1 percent to 8,873, while the tech-laden Nasdaq composite index advanced 1.4 percent to 1,381, and the broad Standard & Poor's 500 gained 1.3 percent to 941. >>