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Wednesday, February 4, 1998
In spite of Asia crisis, tech stock rally continues
Still, there are plenty of factors lurking that could
spoil the party
By Michael Brush
Southeast Asia? What's that?
Only weeks ago, not even strong earnings could shake
the stock market from its deep-set Asian-induced
gloom. Good earnings, which normally act like Prozac
on a down market, had little impact because those
results were accompanied by warnings that the real
effects of Asia would not show up until the first half
of this year.
Now, however, those very same fourth quarter results
-- the cautionary comments conveniently forgotten --
are one of the main reasons behind the solid market
rally that has continued over the past several days.
So much for the rational investor.
Yes, profit taking nudged the Dow Jones Industrial
Average down slightly Wednesday. But that was just an
orderly correction in an ongoing rally that should
carry on, says Hambrecht & Quist trader Michael
Driscoll. Tech stocks, meanwhile, continued their
happy romp, pushing the Nasdaq index up about 14
points on the day.
The stock market rally has been sparked in part by a
sharp inflow of funds starting at the end of January.
An equally important factor, though, is a big shift in
psychology. Once again, market analysts say, investors
have convinced themselves that conditions are just
fine for stocks.
"Fundamentally, there is probably a pretty good reason
for this rally," says Bob Freedman, the chief
investment officer at John Hancock Funds. "We are
coming off a strong quarter. Consumer confidence is
still high. Interest rates are low. All the
ingredients are there. We are still in a very good
environment for stocks."
And Southeast Asia? "The Asian crisis is viewed as a
long-term problem that may affect earnings at some
point in the future."
Many market analysts now expect at least a technical
correction at some point soon. "I would not be
surprised to see another couple of weeks of
consolidation," says Freedman. "A pause would be in
order, and it would be healthy."
After that, analysts say, the rally should continue,
barring any change in conditions. High on the list of
likely candidates to put a damper on the party are the
following.
Economic slowdown Like many investors, Freedman is
keeping a close watch for signs that growth is slowing
down too much. "If the economy does start to really
cool down again, we will be worried about earnings."
So he will be scrutinizing each growth indicator over
the next couple of weeks, from employment numbers to
industrial production.
Cheap Asian goods Investors are also watching for
signs of a flood of cheap goods from Asia. That, too,
would put a damper on the market. And analysts, of
course, do not rule out an unforeseen escalation in
the Asian crisis, which would spark a U.S. sell-off.
Conflict in Iraq A U.S. strike against Iraq to
settle the standoff over weapons inspections would
temporarily bring the markets down. Few analysts, at
the moment, believe an air strike would develop into a
full-fledged war. The wild card, they say, is how the
situation would develop if Israel retaliated because
Iraqi missiles fired in response to a U.S. assault
ended up in Israel.
The end of the earnings hit parade Another problem
that threatens the rally is a turnaround in the flow
of good news on the earnings front, says Louis
Navellier, of Navellier Securities. Typically, he
says, the good news tends to get front-loaded in the
earnings reporting season, once the negative pre-
announcements are out of the way. Then the bad
earnings news starts coming out. If the pattern holds,
one of the factors that has supported this rally will
soon disappear. "We are not going to have the good
earnings to help us much longer," predicts Navellier.
If that is the case, then that's good news for the
long-term investors. Panic sell-offs will give you a
good chance to load up on your favorite stocks.
In other news...
Why Did Buffett Reveal Holdings?
By Andrew Serwer, Senior writer at Fortune
street_life@pathfinder.com
It was a split screen kind of day on Wall Street. The
Dow fell 30 points, to close at 8129, while that perky
NASDAQ climbed 14, to 1680. So far this year the Dow is
up 7 percent, while NASDAQ is up 12 percent (that would
be five points then!). Lesson: It's fun (and
profitable!) to support your local, small, tech stock!
Enough with the drivel, here's what we've been
following today:
STORY OF THE DAY (Hell, year!).... Bill Gates had a
cream pie thrown in his face in Belgium on Wednesday!!!
Now THAT'S HUMILIATION!!! It was some wack Belgian's
idea of techno-terrorism (not a relative of McNealy's,
I hope!). Guy was called "a well-known Belgian
prankster." PLEASE. There's no such a thing!!! Listen
Belgium, leave the pranks to the Americans, okay? (We
have J. Edgar Hoover, Tricky Dick, Pauly Shore, etc.)
You guys stick to making beer. And Bill, cut off all
shipments of op. and ap. software to the Low Countries,
immediately! Browser too! (Oops, I forgot, that's
already part of the operating software!) Seriously,
MSFT wasn't amused by this at all. You can bet Mr. Bill
will be beefing up (mooo) his security. |
