A perspective on the week ahead.. Down Week Ahead
Reuters Sunday, August 25, 2002; 7:24 AM By Chelsea Emery
NEW YORK (Reuters) - Stock market pros often say a rising tide lifts all boats, an adage that conveys how positive sentiment yanks shares higher across the board. But those same Wall Street pros expect stocks to spring a leak next week as fund managers pare back on their recent best performers.
"We've seen unsustainable sharp rallies in individual stocks," said James Luke, who helps oversee $10 billion for BB&T Asset Management. "If you're an active manager, you're going to want to capture that and find the next guy that's going to rally 15 or 20 percent."
Luke said his company had been cutting down its holdings of tobacco giant Philip Morris Cos. Inc. , which had climbed 24 percent in a month.
Other huge gainers have included telephone services provider AT&T Corp. , up more than 30 percent in a month, and Hewlett-Packard Co. , up 24 percent in the same time. The Standard & Poor's 500 index <.SPX> last week racked up its first five-week winning streak in two years.
"We've had a heck of a profit" on some of our stocks, said Thomas Garcia, a trader and fund manager for Thornburg Investment Management, which manages $5 billion. "We're going to sell a little bit here."
Still, the latest economic reports could yank stocks higher if they suggest the U.S. economic recovery is still on track. Investors will scrutinize data on new home sales, durable goods orders and consumer confidence.
The earnings calendar is light, but a few reports from Wall Street favorites will keep investors on their toes.
Hewlett-Packard is expected to report quarterly results on Tuesday, while doughnut chain Krispy Kreme Doughnuts Inc. is expected to report on Thursday.
For the week, the benchmark S&P 500 gained 1.3 percent, while the Dow Jones industrial average <.DJI> rose 1.1 percent. The Dow also was up for the fifth-straight week. The Nasdaq composite index <.IXIC> gained 1.4 percent, marking its third week of gains.
BIGGEST GAINERS ON TRACK TO FALL
Stocks have climbed in the past month as the specter of corporate malfeasance has faded, the outlook for corporate profits has improved and as investors have rummaged through the bargain basement for battered stocks.
In a month's time, the Dow has soared 15 percent, giving some stocks a gain that investors say is unsustainable.
"General Electric Co. , the biggest of the big names, is up 30 percent from its low," said Brian Finnerty, who helps manage $1.5 billion at Melhado Flynn & Associates. "People are saying 'I love GE, but not at $33. Maybe I'll love it again at $28."'
Concerns about the corporate profit outlook and the economy are also likely to take their toll on stocks. Recent retail sales data, for one, have signaled consumers may be slowing their spending. That could spell trouble for Wall Street because consumer spending underpins about two-thirds of economic growth.
"Until you see companies' (profits) actually doing better and consumers spending again, we'll stay in a trading range," Garcia said. "We've had a heck of a run, but there's nothing big that's come out to warrant that run."
Given such jitters, next week's economic data will be scrutinized carefully.
New and existing home sales data for July is expected on Monday, while durable goods orders are expected on Tuesday.
Durable goods orders, forecast to have risen 1.2 percent in July, are important to Wall Street because they can indicate the strength of business investments.
Also on the calendar is consumer confidence data for August, which is expected to dip to 97.0 from a revised 97.1 the previous month.
"I do think the economy is going to improve, although we may have a (stock) pullback because we always do after substantial rallies," said Benjamin Pace, who helps oversee $9 billion for Deutsche Bank Private Banking.
Market action is likely to be choppy as well, traders said. That's because fund managers and other market pros are out on annual August vacations.
"Banks, mutual fund managers, they're all on vacation -- heck, I'm on vacation," said Finnerty, who was on his way to Jackson Hole, Wyoming, for golf and hiking with his family. "You're going to have hedge funds and day traders moving the market. But the bias will probably be to the downside because we've been up for weeks in a row." |
