U.S. Stock Market May Bounce; Limited Gains Seen Amid Concern About Asia
Market May Bounce; Soaring Is Unlikely: U.S. Stocks Outlook
New York, Aug. 7 (Bloomberg) -- Large stocks, left behind in the late-summer rally that took hold in smaller issues after the market tumbled Tuesday, may see only limited gains for the rest of the year, investors say.
Michael P. Donnelly, a money manager at Federated Investors, which oversees $100 billion, said Tuesday's 299-point drop in the Dow Jones Industrial Average was a ''blip'' relative to the gains it's had since 1994. Large stocks ''are still expensive, and profit growth is decelerating,'' he said.
Some of the most passionate stock market boosters are turning tail as Asia's deepening slump threatens to undermine U.S. profits more than they had expected. ''For the first time in history, I'm nervous,'' said Jack McCarthy, 71, a bull since 1950 and former managing partner at Lord Abbett & Co., a New York money management firm. ''We have the most competitive economy in the world and the greatest technology. But we could go into a massive slowdown if Asia goes into the tank.''
Today, Unilever Plc, the world's largest consumer goods company, became the latest in a long list of exporters to blame Asia for slowing profit growth. The maker of Lipton tea and Good Humor ice cream said Asia contributed to stagnant second-quarter profit and remains ''a concern.''
Profits for companies in the Standard & Poor's 500 Index grew 2.5 percent in the second quarter, down from the double- digit gains of recent years.
Lingering Concern
The concern that Asia's deterioration means that earnings for large companies could get worse lingered even when the market recovered in the last three days of the week. While the Dow average rose 1.3 percent from its Tuesday low, small and midsize companies, which have been in a bear market in recent months, surged. The Russell 2000 Index gained 4.3 percent in the past two days, and the Nasdaq Composite Index gained 3.3 percent. ''It's interesting to see what unfolded just in the last 48 hours,'' said Lee Kopp, an Edina, Minnesota money manager who oversees about $3 billion, specializing in small computer-related and health-care companies. ''Three months from today we'll know for sure if the rally is for real.''
The Russell remains 15 percent below its April 21 high, and is down almost 5 percent this year.
Computer-related shares rose in recent days partly on optimism that a glut of inventory of personal computers has been whittled down. Disk-drive maker Seagate Technology Inc., gained 3 1/4, or 15 percent, to 24 15/16 since Tuesday and semiconductor equipment-maker Applied Materials Inc. gained 2 5/8, or 8 percent, to 35 1/8.
Applied Materials is still 35 percent below from its Aug. 20, 1997, peak. As recently as June 15, though, it was 50 percent below that level. ''The perception is that the worst is over,'' said Duane Eatherly, a money manager at Banc One Investments Advisors, which oversees $120 billion.
It was the second-busiest week ever at the New York Stock Exchange, and the most volatile this year, as measured by the Chicago Board Options Exchange volatility index. The Dow Jones Industrial Average tumbled 299 points Tuesday, and finished the week down 285.27, or 3 percent, to 8598.02. That's 739 points, or 7.9 percent, below the July 17 close.
Paradigm Shift?
In the first seven months of the year, the story of U.S. stocks was a tale of two markets. The large-capitalization Dow average rose 18 percent through its July 17 record, while the Russell rose just 5.8 percent in that time. Money managers, overseeing ever-growing sums, find it difficult to buy big stakes of small companies without affecting prices. Huge companies are easier to move in and out of.
Even with its recent decline, though, the Standard & Poor's 500 Index trades 26 times the past year's profits, near a historic high. ''The last few days people have been saying there is a good value in the small to mid-cap area,'' said Michelle Clayman, chief investment officer at New Amsterdam Partners LLC, which manages $652 million.
Dan Franks, a trader at Scott & Stringfellow, a regional brokerage, said the small-cap rally may be the handiwork of individual investors. ''Small investors buy local companies, companies in their backyard,'' he said. ''They buy what they know best. And they can buy as many shares as they need.'' |
