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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (6319)	10/19/2002 9:16:39 PM
From: Return to Sender	Read Replies (1) \| Respond to of 95427

Don't Expect Fairy-Tale Ending to Market Saturday October 19, 7:22 am ET By Pierre Belec biz.yahoo.com NEW YORK (Reuters) - What's wrong with this picture? The stock market soars. But the headlines scream: -- "Lucent to cut 10,000 jobs" -- "Consumer confidence sinks to a nine-year low" -- "Retail sales post steepest drop since November 2001" -- "GM's loss widens" Investors' emotions are running high, as they typically do in October. The Dow Jones industrial average (CBOT:^DJI - News) rocketed almost 1,000 points in the most awesome rally in 70 years after plummeting to its lowest close since October 1998. But the smart money warns that people should not expect a socko finale to this wealth-eating bear market. "We are not looking a gift horse in the mouth," says Kent Engelke, capital market strategist for Anderson & Strudwick Inc. "But we think the recent rally was excessive. Sharp rallies of this fashion are the hallmarks of bear markets." Indeed, woozy investors who have gone through the most horrific experience in a lifetime, are sick and tired of feeling bad. Some are latching on to every bit of "good" news to load up on stocks, and they're apparently accepting the Wall Street sales pitch that if people liked a stock at $20, then they'll love it even more now that the market has re-priced it down to the bargain-basement level of $10. The simple truth is this: Don't expect a fairy-tale ending to this horrific bear market, given the deteriorating economic outlook. DOG-TIRED CONSUMERS The numbers are in. They show American consumers appear to be exhausted after single-handedly keeping the economy afloat for more than two years. Their spending may have reached a saturation point and a slowdown would be only a natural response to heady spending increases. What typically happens is demand gets exhausted, like in a stock market bubble, and people stop buying stuff to catch up to themselves. The risk: Cutbacks on spending by consumers could knock out the only leg that has kept the economy from slipping off the table and back into recession. Retail sales in September posted their biggest drop since late last year. Consumer confidence -- a gauge of household spending -- sank in October for the fifth consecutive month to a nine-year low. It's a big deal. Consumer spending is the engine that drives U.S. growth, accounting for two- thirds of economic activity. For that reason, consumer spending and the stock market are married -- for better or worse -- just like your crotchety Uncle Earl and your dear Aunt Edna. "Weak consumer demand and the slump in manufacturing activity indicate the economy has lost momentum," says Asha Bangalore, economist for Northern Trust Co. "With the exception of the housing sector, the weight of evidence suggests that the prospects for future growth have diminished." AN UGLY HOLIDAY SEASON The economy could get uglier in the final months of the year, considering all the jitters about President Bush's determination to go to war against oil-rich Iraq. Consumers are no longer feeling flush in the weeks leading up to the blockbuster holiday shopping season. Retailers reap as much as 70 percent of their profits between Thanksgiving and Christmas. Now retailers are expecting the worst. Some have pulled back their mid-year forecasts that the 2002 holiday season will be a knockout, compared with last year's dismal post-Sept. 11 results. The reason: Consumers' lines of credit are tapped out after their wild spending spree on cars and homes. That's against the backdrop of the nail biting that consumers already were doing after this summer's massive losses on the Street. It's worth wondering how they would react to a war-driven surge in energy prices and its effect on already weak corporate earnings. Indeed, the stock market is on everyone's mind. The University of Michigan's index of consumer sentiment tumbled to a nine-year low in early October. The largest number of respondents in the survey's 50-year history said their wealth shriveled over the past year -- double the number of those who agonized about their losses after October 1987's market crash. Many experts say a drop in consumption has been delayed by incredibly attractive deals on cars and homes. But few are kidding themselves that the consumer can tap dance forever. Up until now, consumer spending has held up nicely, thanks to the lowest interest rates in 40 years. Faced with a stagnant job market, many heavily indebted consumers may be forced to retrench. DETROIT'S CRACKED ENGINE BLOCK The automakers' sales incentives, such as teaser interest rates of zero are not enticing consumers to buy as much as they did earlier in the year. In September, car sales had their steepest drop since November 2001. This could point to poor car sales in the final three months of the year. Special deals have also encouraged people to buy homes with no down payments. But this has bumped up household debt levels to record highs relative to household income. A surge in loan defaults when Americans lose their jobs and interest rates start to climb could slam the economy harder than any sucker punch thrown by a World Wrestling Enterprises performer. Worth keeping in mind is consumer loans typically lag behind unemployment, which has probably peaked by now, the experts say. So there are clear risks the final months of 2002 could bring a drop in credit quality, especially for lenders who talked their customers into folding their unpaid credit-card balances into bigger mortgage loans. Consumers are already under pressure. The Mortgage Bankers Association said second-quarter mortgage foreclosures were the highest since it began tracking the data in 1972. Mortgage delinquencies were the highest since 1985 and personal bankruptcy filings surged to a record in the second quarter. The weak job prospects also are making consumers feel less exuberant. The number of Americans collecting jobless benefits continues to exceed 400,000, a level typical of recessions. Not enough jobs are being created. Businesses sought to fill only 3.46 million job openings in July when 8.6 million Americans were unemployed, according to the U.S. Bureau of Labor Statistics. That's a deficit of 5.14 million jobs. "The economy is certainly contributing to prolonged unemployment," says John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., an outplacement firm. "The longer people are out of work, the less likely it becomes that they will be out spending money and the economy could become the biggest victim." On Friday, the three major U.S. stock indexes finished their second week of gains in a row, after a six-week losing streak. The Dow average climbed 6 percent to end at 8,322, while the tech-laden Nasdaq composite index (NasdaqSC:^IXIC - News) jumped 6.4 percent to close at 1,288. The broader Standard & Poor's 500 index (CBOE:^SPX - News) surged 5.9 percent to finish at 884. In truth Cary, I'm not sure how I got on that guy's email list but a lot of what he had to say made sense to me. I'm certainly more inclined to agree with the viewpoint above though since it does not try to see quite so far into the future. RtS